V.  .h 


UNIVERSir 

AT    LOS  ANGELES 


ACCEPTANCES 

TRADE  AND  BANKERS' 


ACCEPTANCES 

TRADE  AND  BANKERS' 


BY 
PARK  MATHEWSON 

COUNSELOR     ON    BUSINESS,     FINANCE     MANAGEMENT; 
VICE-PRESIDENT,  THE   BUSINESS  BOUB8E,   NEW   TOKK 


WITH   AN   INTRODUCTION   BY 

WILLIAM  WALKER  ORR 

ASSISTANT  SECRETARY,    NATIONAL   ASSOCIATION   OP   CREDIT 
llEN;   FORMER   SECRETARY,   AMERICAN  TRADE    ACCEPTANCE 
COUNCIL;  EDITOR,    "THE   CREDIT  MONTHLY" 


ILLUSTRATED 


D.  APPLETON  AND  COMPANY 

NEW  YORK  LONDON 

1921 


COPYRIGHT,    1921,    BY 

D.  APPLETON  AND  COMPANY 


PRINTED   IN  THE    UNITED   STATES   OF  AMERICA 


V 
\ 


vS 


PREFACE 

The  endeavor  in  this  volume  is  to  offer  simple  and  prac- 
tical explanation  of  acceptance  principles  and  procedure, 
as  demonstrated  in  actual  use  by  great  numbers  of  bankers 
and  business  concerns  in  the  United  States  and  foreign 
countries.  Research  has  not  been  spared  in  its  prepara- 
tion, and  it  embodies  the  results  of  several  nation-wide  co- 
operative investigations.  There  will  be  found  herein  a 
full  discussion  of  the  practical  scope  and  limits  of  bankers ' 

^  and  trade  acceptances  and,  from  a  consensus  of  opinion, 
their  most  approved  methods  of  use.    It  is  hoped    that  the 

^  basic  principles  discussed  and  the  plans  and  details  of 
procedure  described  may  enlighten  the  student,  assist 
the  banker,  and  enable  the  American  manufacturer,  job- 
ber, or  merchant  to  understand  and  apply  the  acceptance 
in  its  best  form. 

In  banking  houses  it  has  been  found  that  the  most  suc- 
cessful method  of  handling  a  specialty,  such  as  bankers' 
or  trade  acceptances,  is  by  delegating  such  an  activity  to 
one  or  more  men  who,  through  study  and  experience, 
become  experts  in  its  efficient  management.  It  is  prob- 
able, however,  that  in  the  case  of  acceptances,  all  officials 
of  the  bank  who  may  be  called  upon  to  discuss  the  matter 
with  customers  or  financial  men,  in  its  broad  aspects  or  in 
details,  can  receive  benefit  from  studying  the  practical  in- 
formation contained  in  a  volume  which  covers  all  aspects 
of  the  subject.  Although  bankers,  bank  officials,  and  heads 
of  departments  in  the  banks  are  especially  well  posted 
on  financial  technicalities,  yet  progressive  bankers  find  it 

Q    necessary  to  study  every  day  more  closely  the  problems 


vi  PREFACE 

and  experiences  of  their  customers.  The  discussion  of 
principles,  as  well  as  the  consensus  of  experience  of  hun- 
dreds of  actual  users,  offered  in  this  book  will  be  of  excep- 
tional value  to  any  individual  in  a  bank  whose  duties  in- 
clude the  handling  of  acceptances  with  customers. 
I  Any  business  firm  studying  the  subject  of  acceptances 
will  find  in  this  volume  data  of  the  highest  importance  to 
the  general  manager,  who  must  pass  on  it  as  a  "policy," 
the  treasurer,  the  controller,  and  the  credit  managers  who 
must  put  the  acceptance  policy  in  force.  The  book  will  be 
of  equal  value  to  the  sales  manager,  to  the  publicity  man- 
ager, and  to  every  salesman,  who  will  hear  more  and  more 
of  the  subject  and  who  should  be  able  to  discuss  it  intel- 
ligently. 

Although  plans  were  devised  by  the  Federal  Reserve 
Board  several  years  ago  to  make  easy  and  practical  the 
acceptance  methods  in  certain  classes  of  credit  transac- 
tions, in  order  to  save  the  American  business  world  time 
and  money,  its  adoption  was  not  immediate,  except  by  those 
who  are  the  natural  leaders  in  improved  business  methods. 
"Acceptances,"  "bills  of  exchange,"  "trade  bills,"  or 
"bills,"  as  they  are  variously  called,  have  been  for  years 
as  generally  well  known,  used,  and  liked  in  Europe  as  they 
have  been  neglected  in  America  since  the  Civil  War.  Yet 
that  argiiment  alone  has  had  small  effect  with  the  average 
American  firm,  notwithstanding  the  fact  that  more  labor 
saving  devices  and  mechanical  methods  have  been  invented, 
improved,  and  adopted  by  American  business  men  than  by 
all  the  European  nations  combined.  The  business  mind 
and  vision  of  many  of  our  best  bankers  and  business  men, 
however,  seem  to  have  expanded  with  remarkable  rapidity 
under  new  conditions  developed  by  the  World  War,  in  a 
way  that  gives  promise  of  a  great  future  for  our  business 
organizations.  This  book  probably  will  not  interest  the 
man  who  is  too  old,  or  too  obtuse,  to  learn  new  things,  but 


PREFACE  vii 

it  should  be  of  value  to  those  who  seek  to  understand  new 
methods  and  who  do  not  hesitate  to  adapt  them  to  their 
needs. 

Can  America,  although  the  richest  country  in  the  world, 
afford  to  overlook  any  improved  method  of  handling  its 
annual  production  of  billions  of  dollars'  worth  of  agricul- 
tural and  manufactured  commodities,  most  of  which,  at 
one  time  or  another,  are  carried  on  credit?  Through  care- 
ful study  by  the  best  class  of  American  bankers,  business 
men,  and  students  of  finance,  it  may  be  expected  that  all 
possible  benefit  will  be  derived  from  the  application  of 
acceptances  to  liquefying  and  improving  our  credits.  Thus 
will  America  be  put  in  the  running  for  the  great  trade 
prizes  to  be  won  by  the  nation  which  uses  the  swiftest  and 
surest  financial  methods. 

It  is  the  sincere  wish  of  the  author  that  this  volume  may 
contribute  to  the  proper  understanding  and  practical  use 
of  acceptances,  wherever  they  can  serve  a  useful  purpose. 

Park  Mathewson. 


CONTENTS 


PAGE 

Preface        v 


Introduction 


PART  I 
ACCEPTANCE  THEORY,  PROCEDURE,  AND  PRACTICE 

CHAPTER 

I.  The  Theory  of  Acceptance  Payment 

II.  What  Is  a  Trade  Acceptance    .... 

III.  Acceptance  Procedure  in  Canada  and  Europe 

IV.  Acceptances  in  the  United  States    . 

V.    How  to  Install  Trade  Acceptances  in  a  Whole 
SALE  Business 


VI.     Simple    Trade   Acceptance    Methods,    Terms    and 
Forms 


VII.    Satisfactory    Methods    of    Recording    Trade    Ac 
ceptances  and  Checking  Results 

VTII.     Sound  Accounting  Methods   for  Handling  Trade 
Acceptances  by  Seller  and  Buyer 

IX.     Instructions  and  Letters  to  Salesmen  and  Cus 
tomers,  and  How  to  Handle  Them 

X.     Various  Channels  for  Handling  Acceptances 

XI.     General   Methods   op  Collecting   or  Discounting 
Acceptances  through  the  Banks 

XII.     Should  Inducements  Be  Given  to  Buyers  to  "Ac 
cept" 


3 

11 

24 
37 

44 

51 

58 

70 

85 
95 

107 


116 

XIII.  The  Trade  Acceptance  and  the  Retail  Merchant     127 

XIV.  Bankers'  Acceptances,  Definition  and  Functions    134 

XV.     Bankers'    Acceptance    Methods,    and    Forms    op 

Leading  Banking  Institutions     ....     144 


c  CONTENTS 

CHAPTER  PAGE 

XVI.    Records  op  Acceptances  Kept  within  a  Banking 

Institution 158 

XVII.    Investigations    by    Questionnaire    of    Trade    Ac- 
ceptances   183 


PART  II 

RULINGS  AND  OPINIONS  OF  COUNSEL  OTF  THE 

FEDERAL  RESERVE  BOARD  ON 

ACCEPTANCE  PROCEDURE 

XVIII.     Rulings  of  the  Federal  Reserve  Board    .        .        .     197 

XIX.     Opinions    of    Counsel    of    the    Federal    Reserve 

Board 212 


PART  III 

DATA   FOR   TRADE    ACCEPTANCE   CAMPAIGNS 

XX.    What    Can    the    Trade   Acceptance   Do    for    the 

American  Business  Man 261 

XXI.    Acceptances  and  Manufacturer  and  Wholesaler    268 

XXII.     Trade  Acceptances  and  the  Retailer     .        .        .     285 

XXIII.    The  Ultimate  Consumer 301 

XXIV,    Putting     the     Trade     Acceptance     into     Effect 

through  Trade  Organizations      ....    309 

XXV.    Points  op  View  of  Buyers  Who  Hesitate  to  ' '  Ac- 
cept," WITH  Brief  Answers  Thereto  .        .         .     327 

XXVI.    Making  Clear  to  the  Buyer  the  Advantages  of 

Trade  Acceptances 335 

Index  to  Rulings  and  Opinions  op  Counsel  of  the 
Federal  Reserve  Board 344 

Index 358 


ILLUSTRATIONS 

IGURE  PAGE 

1.  Trade  Aeeeptanee  Form  of  the  American  Acceptance 

Council ■     .         .        •        .15 

2.  Trade  Acceptance  Form  of  the  National  Association 

of  Credit  Men 18 

2a.  Reverse  of  Figure  2 19 

3.  Standard  Form  Trade  Acceptance  Designed  by  the 

Business   Boui-se 20 

3a.  Reverse  of  Fignre  3 21 

4.  5,    and    6.      Typical   Drafts    or    Acceptances    of   a 

Canadian  Manufacturer 27 

7.  Acceptance  Register  or  Record  of  Bills  Receivable 

of  a  Canadian  Manufacturer         .         .        .         28,29 

8.  Typical  Canadian  Draft  or  Trade  Acceptance  Form      30 

54 


9.     Trade  Acceptance  Form  Filled  in  for  Acceptance 
by   Buyer  ....... 

10.  Reverse  of  Form  Shown  in  Figure  9,  Filled  in  for 

Acceptor's  Record 

11.  Trade  Acceptance  Register  for  Drawer  (Seller) 

12.  Trade  Acceptance  Register  for  Acceptor  (Buyer) 

13.  Standard  Check-Up  Sheet  for  Recording  Trade  Ac 

ceptance  Results      ...... 

14.  Trade  Acceptance  Daily  Record  Form     . 

15  and   16.     Typical   Bankers'   Acceptances  in   Foreign 
Trade        


17.  Bankers'  Acceptance  Form  for  Domestic  Trade 

18.  Bankers'  Acceptance  Form  Designed  by  the  Ameri 

can  Acceptance  Council 


55 
62 
63 

66 
68 

148 
149 

151 


xii  ILLUSTRATIONS 


19   and   20.     Trade  Acceptances   Record    Sheets   of  the 

Bank  of  California 160 

21.     Acceptance  Form   Recommended  by  the   American 

Bankers'  Association  Committee     ....     164 


22.  Triplicate  Acceptance  Collection  Blanks  Recom- 
mended by  the  American  Bankers'  Association 
Committee         ..... 


23.     Collection    Notice   Recommended   by   the 
Bankers'  Association  Committee     . 


American 


165 


166 
171 
171 
172 
172 
173 
173 


24.  Acceptance  Application 

25.  Bank's  Record  of  Acceptances  Maturing 

26.  Bank's  Instructions  for  Discount 

27.  Bank's  Memorandum  of  Discount     . 

28.  Bank's  Credit  Ticket 

29.  Loan  Division  Acceptance  Record     . 

30.  Bank's  Record  of  Acceptances  Purchased         .        .     174 

31.  Endorser's  and  Drawer's  Liability  Record       .         .    175 

32.  Acceptor's   Liability   Record 175 

33.  34,   and   35.     Bank's  Records   of  Acceptances   Pur- 

chased  or   Sold 176 

36.  Bank's  Collection  Record 177 

37.  Bank's  Interest  Record 178 

38.  Duplicate  Record  Forms  for  Various  Departments  179-180 

39.  Simple  Form  of  Duplicate  Record  Used  by  a  Dis- 

count  House 181 

40.  Form  of  Retail  Trade  Acceptance  in  Use  in  Joliet, 

Illinois 288 

41.  Form  of  Trade  Acceptance  Made  Out  by  Retailer 

and  Accepted  by  Consumer 296 

41a.  Reverse  of  Figure  41 297 


INTRODUCTION 

It  was  the  business  men,  as  well  as  the  bankers,  of 
the  country  whose  demand  for  scientific  banking  legisla- 
tion brought  forth  the  Federal  Reserve  Act — a  great  busi- 
ness, as  well  as  a  great  banking,  law. 

Here  we  find  for  the  first  time  in  American  banking  that 
true  commercial  paper  is  given  its  rightful  place;  that, 
except  United  States  Government  securities,  it  becomes  the 
most  desirable  investment  for  the  banker,  forming  as  it 
does  a  secondary  reserve,  the  most  liquid  in  his  portfolio. 
It  is  through  this  paper  indeed  that  the  banker  can  make 
available  for  his  own  safety  and  for  the  service  of  his 
clients  the  resources  of  the  whole  Federal  Reserve  System, 
not  only  those  of  his  own  reserve  district  but  of  all  the 
other  reserve  districts  as  well. 

The  banker  naturally  wants  all  the  business  paper  he 
buys,  so  far  as  possible,  to  meet  the  requirements  of  the 
law,  which  will  make  the  commercial  paper  he  buys  un- 
questionably available  as  a  secondary  reserve.  But  this 
has  laid  on  business  men,  in  turn,  a  condition  that  they 
so  conduct  their  affairs  that  the  paper  they  offer  the  bank 
shall  conform  with  the  requirements  of  the  Federal  Reserve 
law  as  interpreted  by  the  Federal  Reserve  Board  gov- 
erning paper  that  can  be  rediseounted  or  bought  by  the 
Federal  Reserve  Banks. 

The  Federal  Reserve  Board  soon  after  being  organized, 
in  its  work  of  interpreting  the  Act  which  created  the 
Board,  indicated  a  preference  for  commercial  paper  that 
would  show  on  its  face  that  it  arose  from  a  cuiTent  mer- 
chandise transaction,  a  true  bill  of  exchange;   and  this 


xiv  INTRODUCTION 

class  of  paper  the  Board  styled,  in  order  to  make  it  dis- 
tinctive, the  "trade  acceptance." 

The  trade  acceptance  lies  close  to  the  very  heart  of  the 
Federal  Reserve  System,  for  without  it  or  related  business 
paper  the  Federal  Reserve  System  cannot  properly  func- 
tion for  the  welfare  of  business;  hence  bankers  and  busi- 
ness men  should  thoroughly  understand  this  ancient  in- 
strument which  but  recently  has  entered  into  American 
commerce. 

It  is  well  that  this  volume,  treating  of  the  acceptance 
in  its  many  aspects,  has  been  offered  to  the  public  by  one 
who  has  studied  profoundly  the  needs  of  business  in  its 
manifold  relations,  and  particularly  in  its  relation  to  bank- 
ing, always  with  a  view  to  finding  a  way  to  meet  the  need. 
The  happy  combination  of  the  theory  of  the  trade  accept- 
ance with  practice  under  the  acceptance  system  has  been 
in  these  pages  particularly  well  worked  out,  and  the  book 
makes  an  addition  of  inestimable  value  to  the  list  of  busi- 
ness books.  It  were  highly  advantageous  if  bankers  as  well 
as  business  men  should  catch  the  true  spirit  of  the  accept- 
ance as  presented  in  these  illuminating  pages  of  descrip- 
tion and  definition. 

William  Walkeir  Orb 


PART  I 

ACCEPTANCE     THEORY,    PROCEDURE, 
AND  PRACTICE 


CHAPTER  I 

THE  THEORY  OF  ACCEPTANCE  PAYMENT 

Acceptances  and  the  Credit  System. — Payment  by  ac- 
ceptance is  as  old  and  as  broad  as  trade  on  the  seven  seas 
of  the  world.  Ever  since  pure  barter  of  one  article  for 
another  was  superseded  by  the  modern  system  of  buying 
and  selling  with  credit  given  and  taken  in  the  business 
transaction,  the  method  of  paying  by  "acceptance"  has 
been  in  vogue.  The  giving  and  taking  of  credit  is  one  of 
the  essentials  of  payment  by  acceptance,  and  it  thus  has 
no  place  in  the  buying  and  selling  of  goods  for  cash.  A 
transaction  on  credit  must  be  paid  in  the  future,  and  the 
acceptance  is  one  of  the  oldest  and  most  efficient  methods 
of  definitely  providing  for  a  means  and  time  of  such  pay- 
ment. 

As  credit  consists  mainly  of  two  elements,  time  and  con- 
fidence, the  trade  acceptance,  although  it  may  be  as  liberal 
as  seems  desirable  in  regard  to  the  time  element,  yet  main- 
tains the  element  of  confidence  in  the  highest  degree  by  a 
fair  *  *  give-and-take ' '  arrangement  in  which  the  seller  signs 
a  paper  (trade  acceptance)  specifically  agreeing  to  give 
certain  terms  to  which  the  buyer  has  agreed  as  satisfac- 
tory at  time  of  purchase.  The  buyer,  simply  as  a  fair 
return  for  the  agreenaent  and  the  valuable  goods  which 
the  seller  has  delivered  to  him  on  his  credit,  countersigns 
or  "accepts"  the  paper,  thus  signifying  that  the  terms  are 
satisfactory,  that  it  is  his  desire  and  intention  to  live  up 
to  his  end  of  the  bargain  he  made  when  ordering  the  goods, 
and  that  he,  equally  with  the  seller,  is  willing  to  evidence 

3 


4  ACCEPTANCES 

his  good  faith  by  also  putting  his  name  on  the  acceptance. 
When  the  instrument  is  accepted  by  a  banker  (bankers' 
acceptance),  his  indorsement  usually  tends  to  enhance  the 
element  of  confidence  in  the  credit  transaction. 

Eaxly  Use  of  the  Trade  Acceptance. — The  operation  of 
acceptance  credit  and  payment  is  graphically  illustrated 
by  the  early  methods  and  necessities  that  brought  them 
into  being  in  the  interchange  of  goods,  both  locally  and 
between  different  countries.  Although  this  method  of  pay- 
ment dates  back  to  early  European  trade,  let  us  draw  our 
illustration  of  its  use  from  the  early  days  of  the  American 
Colonies, 

Great  Britain  might  ship  a  cargo  of  needed  goods  to 
the  Colonies.  On  arrival  the  goods  would  be  presented  to 
the  local  merchants  or  trading  companies,  together  with 
an  itemized  bill,  which  bill  would  be  "accepted"  by  the 
American  purchasers  for  payment  at  a  certain  date  in 
the  future,  usually  in  England,  the  country  whence  the 
goods  came.  Often  tobacco,  skins,  or  other  American  goods 
would  be  conveyed  on  the  return  voyage  of  the  same  ship 
in  which  the  goods  had  come  to  America  and  in  which  the 
"acceptance"  for  the  original  cargo  was  returned  to 
England.  These  goods  were  not  sent  for  barter  or  in  ex- 
change ;  they  were  consigned  or  were  sold  outright  on  their 
arrival  in  England,  either  for  cash  or  for  an  acceptance 
by  the  English  buyers,  and  the  proceeds  were  used  to 
liquidate  the  acceptance  of  the  colonial  merchants  given 
for  the  original  shipment  of  goods. 

Hence  it  is  apparent  that,  even  in  the  early  days,  accept- 
ances were  used  almost  as  a  form  of  currency  which  en- 
abled buyers  and  sellers  to  do  business  without  the  actual 
transfer  of  gold.  Furthermore,  the  sale  and  purchase  of 
goods  on  acceptance  were  not  confined  to  international 
trade,  or  even  to  interstate  trade,  but  were  resorted  to 
locally.     As  banks  or  banking  houses  in  those  days  sel- 


THEORY  OF  ACCEPTANCE  PAYMENT  5 

dom  intervened  in  such  transactions,  these  early  credit 
papers  were  the  same  as  the  present-day  foreign  or  do- 
mestic "bill  of  exchange"  or  "trade  acceptance."  The 
acceptance  of  the  draft  by  a  bank  or  banking  house,  which 
is  now  almost  universally  the  practice  in  the  settlement 
of  international  trade,  came  centuries  later,  after  the  es- 
tablishment of  a  banking  system  and  its  connection  with 
commercial  business,  which  have  gradually  developed  our 
present-day  efficient  settlements  in  foreign  and  domestic 
commerce. 

From  the  foregoing  illustration  it  will  be  seen  that  the 
theory  of  acceptance  payment  is  not  a  new  one  in  the 
world,  and  in  fact,  not  new  even  in  the  United  States. 
Acceptances  were  quite  generally  used  by  our  merchants, 
even  in  domestic  transactions,  up  to  the  Civil  War  in 
1861.  During  the  practical  disuse  of  the  acceptance  sys- 
tem under  our  banking  laws  for  over  half  a  century,  how- 
ever, new  generations  have  grown  up,  unaware  of  the  old 
systems  and  methods.  Careful  study  of  the  theory  and 
methods  of  acceptance  payment,  since  its  rehabilitation  un- 
der the  Federal  Reserve  Act,  has  again  become  profitable, 
not  only  by  students  of  finance,  but  by  all  those  practicing 
or  interested  in  actual  merchandise  credit  transactions. 

How  the  Acceptance  Theory  Is  Put  into  Practice. — As 
the  application  of  the  theory  of  acceptance  payment  is 
practically  the  same  for  all  classes  of  acceptances,  it  may 
be  readily  explained  by  a  discussion  of  a  simple  buying 
and  selling  transaction  on  credit  between  domestic  mer- 
chants, settled  by  a  paper  named  by  the  Federal  Reserve 
Board  a  "trade  acceptance." 

Payment  by  trade  acceptance  is  resorted  to,  for  instance, 
when  a  manufacturer  or  jobber  desires  to  sell  goods  on 
credit  to  a  merchant  or  consumer,  but  desires  also  to  have 
some  tangible  documentary  evidence  of  such  sale  and  for 
its  settlement.    A,  the  seller,  gives  credit  to  B,  the  buyer, 


6  ACCEPTANCES 

and  B  acknowledges  such  credit  and  settles  for  the  goods 
purchased  by  "accepting"  a  trade  bill  or  trade  acceptance. 
This  obligation,  payable  for  a  certain  sum  at  a  certain  date 
in  United  States  money,  is  in  full  settlement  of  the  debt, 
which  the  buyer  finally  liquicfates  by  paying  the  amount 
of  the  trade  acceptance  on  its  due  date  at  the  bank  or 
other  place  he  therein  designates  for  payment. 

Acceptance  payment,  however,  goes  still  further,  in  al- 
lowing the  drawer,  of  the  acceptance  to  realize  upon  this 
credit  or  debt,  under  proper  conditions,  through  the  usual 
banking  channels.  The  debt  thus  becomes  "liquid,"  and 
the  drawer  of  the  acceptance  is  enabled  to  extend  or  oper- 
ate his  business  without  the  necessity  of  borrowing  simply 
on  his  own  credit.  He  uses  the  credit  of  the  acceptor  while 
putting  his  own  guarantee  thereon,  and  furthermore,  in 
theory,  behind  the  transaction  lies  the  value  of  the  goods 
constituting  the  purchase  and  sale,  of  which  the  trade  ac- 
ceptance is  the  written  evidence.  Thus  A,  by  selling  on 
credit,  does  not  become  the  banker  of  B,  but,  having  ob- 
tained the  buyer's  acknowledgment  of  acceptance  of  the 
debt,  he  can  sell  this  acknowledgment,  with  his  indorsement 
and  guarantee  thereon,  to  a  regular  banking  institution 
and  thus  liquidate  the  commercial  credit.  The  banker  can 
pass  this  commercial  paper  on  through  the  Federal  Re- 
serve Banks,  which,  in  turn,  can  issue  currency  against 
such  "eligible"  acceptances.  Thus  the  cycle  of  liquidated 
credit  is  complete.  The  theory  of  acceptance  payment, 
therefore,  is  that,  under  proper  conditions,  all  commercial 
credit  transactions  will,  through  acceptance  payment  and 
discount,  liquidate  themselves  completely.  Acceptance 
payment  thus  assists  the  full  and  free  operation  of  mer- 
"chandise  credit  sales. 

Care  Necessary  in  Application  of  Acceptance  Theory. 
— Obviously  it  is  as  necessary  to  consider  the  element  of 
safety  in  granting  credit  under  acceptance  payment  as  it 


THEORY  OF  ACCEPTANCE  PAYMENT     7 

is  in  any  other  credit  transaction.  An  acceptance  given 
by  an  irresponsible  acceptor,  or  one  indorsed  by  a  drawer 
who,  through  carelessness  or  dishonest  means,  will  not  do 
his  part  in  the  liquidation  of  the  acceptance,  is  an  ever 
present  risk  in  credit  transactions  by  acceptance.  The  ex- 
ercise of  care  and  the  establishment  of  proper  safeguards 
by  seller  and  banker  are  just  as  necessary  on  acceptance 
credit  as  on  any  other  class  of  sale,  discount,  or  loan. 
Hence,  in  studying  in  theory  or  in  practice,  acceptance  pay- 
ment, it  is  essential  for  safety  to  consider  all  aspects  from 
a  conservative  standpoint.  This  warning  should  not  be 
taken  lightly  by  those  who  are  too  readily  prejudiced  in 
favor  of  acceptance  theory,  for  although  the  principle  is 
absolutely  sound  and  practical,  yet  careful  judgment  is 
essential  to  its  proper  application  and  highest  success. 

The  open  account  and  cash  discount  are  little  used  in 
foreign  countries,  compared  with  their  almost  universal 
use  in  business  transactions  in  the  United  States.  Some 
business  men  in  this  country  have  vigorously  attacked  the 
trade-acceptance  system  on  the  ground  that  its  use,  under 
certain  conditions,  is  not  an  improvement  on  the  open-ac- 
count and  cash-discount  system,  to  which  they  attribute 
the  healthy  and  enormous  growth  of  trade  in  this  coun- 
try. They  argue  that  the  theory  of  acceptance  payment, 
if  put  into  universal  practice,  would  replace  our  present 
system  of  cash  and  credit,  and  thus  would  break  up  the 
cash-discount  system,  which  they  believe  to  be  a  valuable 
asset  in  our  business  organization.  They  also  hold  that  the 
acceptance,  if  put  into  general  practice,  would  tend  to 
extend  the  time  of  credit,  and  in  so  far  as  it  encouraged 
100  per  cent  discount  at  banks,  would  also  tend  to  an  undue 
inflation  in  general  credit.  The  principal  exponents  of  this 
view  are  found  among  the  jobbers  and  those  who  rely  on 
the  cash  discount  as  an  important  element  of  profit  and  who 
limit  their  customers'  credits  to  approximately  30  days. 


8  ACCEPTANCES 

The  arguments  for  and  against  the  theory  of  acceptance 
credit  will  not  be  enlarged  upon  in  this  chapter.  Varying 
views  on  this  subject,  as  set  forth  by  their  sponsors,  are 
presented  in  later  chapters  for  the  consideration  of  those 
interested  in  all  views  on  the  acceptance  It  may  be 
pointed  out  here,  however,  that  any  tlieory  or  practice,  be 
it  good  or  bad,  can  be  exaggerated,  and  that  the  methods 
of  cash  discount,  if  handled  in  an  unsound  manner,  can  be 
carried  to  an  extreme  as  readily  as  the  acceptance  system. 
Furthermore,  when  unwarranted  or  improperly  handled  by 
merchants  or  bankers,  credit,  under  any  conditions,  may 
be  unduly  extended  and  inflation  be  encouraged,  whatever 
the  medium  of  exchange. 

Acceptance  Theory  Generally  Indorsed  Abroad. — The 
acceptance  system  of  credit,  modified  more  or  less  as  em- 
ployed in  various  countries  and  under  different  conditions, 
is  commented  upon  by  a  banker  prominent  in  international 
trade  as  follows : 

Banks  in  the  United  States  with  international  connections 
have  for  years  taken  advantage  of  the  open  discount  markets 
of  the  large  financial  centers  of  Europe,  and  American  houses 
doing  an  export  and  import  business  would  have  found  it  im- 
possible to  have  financed  the  tremendous  volume  of  imports  and 
exports  if  they  had  not  done  so. 

London  for  years  has  been  the  financial  center  of  the  world, 
largely  due  to  the  existence  in  that  city  of  an  open  discount 
market,  the  result  of  the  use  of  what  in  England  are  termed 
"bills,"  which  are  known  to  us  as  bank  acceptances  and  trade 
acceptances. 

Just  prior  to  the  war  it  was  estimated  that  at  least  $3,000,000,- 
000  of  these  short-time  bills  were  in  circulation  in  the  London 
market.  The  existence  of  this  open  market  has  attracted  idle 
funds  from  all  parts  of  the  world,  which  insures  ample  supply 
of  capital  for  the  use  of  English  merchants  and  banks  at  low 
rates  of  discount.  The  banks  of  England  invest  in  high-grade 
commercial  paper  upon  which  they  can  readily  realize  in  ease 
of  need  through  the  rediscount  facilities  that  are  thus  provided. 


THEORY  OF  ACCEPTANCE  PAYMENT  9 

As  will  appear  in  later  chapters,  the  acceptance  theory 
is  the  same  for  the  trade  acceptance  as  for  the -acceptance 
of  which  a  bank  or  banking  house  is  the  acceptor.  The 
difference  is  only  in  detail,  in  the  matter  of  the  acceptor, 
in  that,  whereas  a  trade  acceptance  is  a  paper  representing 
a  transaction  between  merely  a  buyer  and  a  seller,  the 
bankers'  acceptance  represents  a  transaction  in  which  not 
only  is  merchandise  sold,  but  usually  the  paper  is  drawn 
by  the  owner  or  seller  and  the  banker's  name  is  indorsed 
thereon  as  a  guarantee  of  the  payment  of  the  acceptance. 

An  acceptance  is  the  same  whether  it  represents  a  do- 
mestic transaction,  in  which  both  buyer  and  seller  are  in 
this  country,  or  a  foreign  transaction,  in  which  one  or  more 
of  the  parties  thereto  is  located  in  another  country.  Ac- 
ceptances are  quite  universally  indorsed  in  foreign  coun- 
tries and  "bank  bills,"  or  "trade  bills,"  in  various  forms 
are  used  to  a  much  greater  degree  than  they  are  in  the 
United  States.  Their  use  in  foreign  countries  will  be 
more  fully  dealt  with  in  other  chapters. 

There  is  no  question  that  the  bulk  of  the  world's  ac- 
ceptance business  is  done  through  acceptances  accepted 
or  indorsed  by  banks.  This  is  especially  so  in  international 
trade,  for  it  is  stated  that  probably  a  total  of  75  per  cent 
of  the  world's  foreign  commerce  is  financed  at  some  time 
or  other  by  means  of  banker's  acceptances.  Each  class  of 
acceptance  has  its  proper  sphere  and  application. 

Common  Practice  Necessary  in  World's  Intercourse. — 
The  consensus  of  opinion  among  the  large  commercial  na- 
tions on  the  availability  and  value  of  the  acceptance  theory 
and  practice  leaves  no  doubt  that  the  United  States  will 
find  advantage  in  the  study  of  acceptance  methods,  to  the 
end  that  they  may  be  applied  wherever  it  is  found  that 
their  use  will  facilitate  or  improve  the  credit  transactions 
of  the  nation's  commerce. 

It  is  apparent  that  we  are  coming  into  closer  relations 


10  ACCEPTANCES 

will  all  countries,  not  only  politically  and  economically  but 
also  in  trade,  and  that  we  should  either  standardize  our 
methods  with  theirs  or  arrange  that  they  standardize  theirs 
with  ours,  to  accomplish  the  greatest  good  for  the  great- 
est number  and  facilitate  the  most  complete  and  satisfac- 
tory intercourse. 

Nothing  in  the  way  of  prejudice  and  ignorance  should 
prevent  the  most  rapid  and  efficient  advance  of  commerce 
in  this  country  and  with  the  other  countries  of  the  world. 

It  therefore  seems  apparent  that  all  students,  economists, 
and  business  men  should  find  benefit  in  the  careful  study 
o±  acceptance  theory  and  practice.  Succeeding  chapters 
will  go  into  the  details  of  common  practice  and  methods 
now  in  use  in  creating,  handling,  recording,  and  discount- 
ing bankers'  and  trade  acceptances. 


CHAPTER  II 

■WHAT  IS  A  TRADE  ACCEPT ANC?E? 

The  very  fact  that  the  trade  acceptance  is  proving 
valuable  in  its  appointed  field  should  warn  against  ascrib- 
ing to  it  powers  or  functions  which  it  does  not  possess. 
It  has  no  magic  which,  by  mere  "acceptance,"  can  convert 
an  undesirable  credit  into  a  good  one,  or  usurp  the  func- 
tions of,  or  do  away  with,  the  judgment  of  the  credit  man, 
of  the  seller,  or  of  the  bank. 

The  trade  acceptance  cannot  make  a  bad  account  good, 
but  its  use  should  make  good  accounts  prompt  pay,  and 
also  enable  the  holder  to  realize  on  them  comparably  with 
cash.  To  the  banker  it  is  an  augury  of  the  use  of  better 
business  methods  by  his  clients,  and  to  the  business  man, 
large  or  small,  it  may  prove  a  convenience  and  a  safeguard 
of  great  worth  in  smoothing  out  credit  worries  and  fail- 
ures by  contributing  to  the  more  satisfactory  standardiz- 
ing of  credits,  as  well  as  by  advancing  the  education  of  the 
smaller  merchant  in  the  best  business  methods. 

As  described  at  length  in  succeeding  chapters,  this  sim- 
ple check-like  paper,  christened  by  the  Federal"  Reserve 
Board  the  "Trade  Acceptance,"  is  used  only  in  credit 
transactions  that  concern  the  purchase  and  sale  of  goods. 
It  cannot  be  given  for  borrowed  money  or  past  due  ac- 
counts, but  must  represent  only  a  current  transaction,  in 
order  to  be  eligible  for  handling  by  Federal  Reserve  Banks. 
The  description  "goods"  covers  goods,  wares,  merchan- 
dise, and  agricultural  products,  including  livestock.     The 

11 


12  ACCEPTANCES 

trade  acceptance  has  no  relation  to  cash  transactions  on 
short-term  basis. 

In  brief,  the  trade  acceptance  is  a  simple,  efficient  means 
for  enabling  most  business  men  to  close  a  transaction 
cleanly  in  one  operation,  and  thus  make  it  possible  for 
them  to  give  more  of  their  time  to  the  creative  side  of 
their  business  and  less  to  the  costly  and  non-productive 
matter  of  collections. 

Introduction  of  the  Trade  Acceptance  in  the  United 
States. — This  instrument  was  inaugurated  as  a  help  to 
business  and  banking  in  the  United  States  by  the  Federal 
Reserve  Board  in  its  ruling  defining  a  trade  acceptance, 
promulgated  July  15,  1915,  which  communication  official- 
ly states : 

The  attached  regulation  is  to  deal  with  "Trade  Acceptances" 
as  a  distinct  class  of  commercial  paper  for  which  the  Board  is 
ready  to  approve  the  establishment  of  a  discount  rate  somewhat 
lower  than  applicable  to  other  commercial  paper. 

In  its  "first  word"  the  Board  apparently  placed  this 
new  member  of  the  credit  family  in  a  class  by  itself.  The 
Board  goes  still  further  in  its  introduction  and  says  that  the 

Board  expresses  the  belief  that  it  (the  trade  acceptance)  will 
considerably  enlarge  the  scope  of  service  of  Federal  Reserve 
Banks  and  incidentally  assist  in  developing  a  class  of  "double 
name"  paper,  which  has  shown  itself  in  so  many  countries  a  de- 
sirable fonn  of  investment  and  an  important  factor  in  modern 
commercial  banking  systems. 

Thus  is  ascribed  to  the  trade  acceptance  the  potential 
possibility  of  enlarging  the  "scope  of  service"  of  the  Re- 
serve Banks  to  the  commercial  world  at  large.  It  is  also 
defined  as  a  kind  of  paper  which  has  shown  itself  a  "de- 
sirable investment"  in  many  countries  as  well  as  an  "im- 
portant commercial  banking  factor." 


WHAT  IS  A  TRADE  ACCEPTANCE  13 

It  is  natural  that  the  commercial  world  should  give  con- 
sideration to  a  new  credit  instrument  to  which  no  less  a 
body  than  the  Supreme  Court  of  Finance  of  the  United 
States — the  Federal  Reserve  Board — ascribes  so  many 
diverse  powers  of  benefit  to  American  banking  and  busi- 
ness. 

Following  the  lead  from  headquarters,  certain  bank- 
ers took  up  the  propaganda  for  prompt  adoption  of 
the  trade  acceptance.  They  generously  gave  aid  by 
speeches  and  articles,  setting  forth  the  benefits  to  be  de- 
rived by  the  commerce  of  the  country  by  substituting  the 
trade  acceptance  method  of  giving  credit  for  the  old  open 
account  system,  which  has  so  long  held  sway  in  the  United 
States. 

To  the  National  Association  of  Credit  Men  can  be 
ascribed  the  first  organized  effort  to  enlighten  the  business 
mind  of  the  country  as  to  the  benefits  of  the  trade  accept- 
ance in  liquefying  the  four  billions  of  frozen  open-account 
credits  of  the  country.  Following  the  credit  men's  lead, 
the  live  captain  of  industry  began  to  inquire,  "What  is 
this  trade  acceptance  I  hear  and  read  so  much  about?" 
When  he  sought  for  a  simple  or  detailed  explanation  he 
was  not  over-well  rewarded,  unfortunately,  because  most 
of  the  first  pamphlets  on  the  subject  were  published 
speeches  or  technical  treatises  by  bankers  or  credit  men, 
who  naturally  did  not  speak  in  the  every-day  business 
terms  of  the  ordinary  merchant  or  manufacturer. 

The  financial  mind  overlooked  the  effect  of  explanations 
too  technical  for  ready  comprehension  by  the  average  busi- 
ness man,  who  does  not  come  into  continual  contact  with 
financially  phrased  literature.  The  average  business  man 
is  usually  very  busy,  and  may,  therefore,  cast  aside  any- 
thing that  is  "too  much  bother  to  puzzle  out"  or,  if  he 
does  not  clearly  comprehend  its  meaning  and  significance, 
he  sometimes  suspects  that  it  contains  hidden  dangers  of 


14  ACCEPTANCES 

whicli  he  is  ignorant,  and,  therefore,  he  decides  "to  take 
no  chances"  with  this  unknown  quantity. 

Definition  of  the  Trade  Acceptance. — The  first  explana- 
tions of  the  trade  acceptance  mostly  read  as  follows : 

A  trade  acceptance  is  a  draft  drawn  by  the  seller  on  the  buyer 
acknowledging  a  debt  for  value,  having  a  definite  maturity,  and 
payable  in  dollars  in  the  United  States  without  qualifications, 
and  signed  by  the  buyer  across  the  face.  It  differs  from  an  open 
account  only  in  having  a  negotiable  value  to  the  seller. 

This  definition  is  entirely  correct  but  unattractive  to 
the  acceptor.  In  later  trade-acceptance  literature  a  great 
improvement  is  seen,  it  being  apparently  realized  then  that 
when  a  campaign  is  launched  to  bring  enlightenment  to 
all  the  highways  and  byways  of  business,  it  must  be  pre- 
sented in  language  free  from  technical  terms. 

The  salient  points  in  the  Board's  ruling  (which  appears 
in  full  in  Chapter  IV)  may  be  covered  as  follows:  "A 
trade  acceptance  is  an  order  to  pay,  drawn  by  the  seller 
and  accepted  by  the  buyer,  and  represents  current  transac- 
tions in  merchandise  only,  as  stated  on  its  face."  One 
authority  describes  it  as  "a  time  bill  of  exchange,  serving 
the  same  purpose  as  a  transfer  of  gold  itself,  in  the  can- 
cellation of  debts.  Economists  regard  it  as  a  sort  of  spe- 
cial currency." 

Or,  more  particularly  defined,  it  is :  A  bill  of  exchange 
arising  out  of  a  current  merchandise  transaction,  drawn 
to  order,  having  a  definite  maturity,  and  payable  in  dollars 
in  the  United  States.  The  obligation  to  pay  has  been 
accepted  by  an  acknowledgment,  written  or  stamped,  and 
signed,  across  the  face  of  the  instrument,  by  the  company, 
firm,  corporation,  or  person  upon  whom  it  is  drawn  and 
who  is  the  buyer.  The  agreement  is  to  the  effect  that  the 
acceptor  will  pay  at  maturity,  according  to  its  tenor,  such 
bill  without  qualifying  conditions.  A  trade  acceptance  is 
a  two-name  paper  and  has  behind  it  not  only  the  names  of 


WHAT  IS  A  TRADE  ACCEPTANCE 


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Figure   1.    Trade  Acceptance  Form   of  the  American  Accept- 
ance Council 

the  acceptor  and  the  drawer,  but  also  those  of  any  indors- 
ers,  and  it  also  has  the  advantage  of  representing  an  actual, 
current,  merchandise  credit  transaction. 

The  president  of  a  large  national  bank  defines  it  as  fol- 
lows: 

A  trade  acceptance  is  a  negotiable  acknowledgment  of  the  re- 
ceipt of  goods  and  an  agreement  to  pay  for  same  at  a  fixed 
time  or  place.  Tke  fvinction  of  the  trade  acceptance  is  to  take 
the  place  of  the  goods  you  sell.  In  my  business,  banking,  when 
we  sell  goods,  we  take  from  the  purchaser  something  represent- 
ing that  sale,  and,  if  these  goods  pass  out  of  our  hands,  we  have 
in  our  portfolio  some  form  of  receipt  from  the  purchaser,  or 
holder,  representing  the  goods. 

It  is  just  as  important  that  the  billions  of  dollars'  worth  of 
goods  passing  between  manufacturer  or  jobber,  and  retailer  or 
consumer,  on  credit,  should  be  represented  by  some  form  of 
receipt  or  negotiable  instrument,  as  it  is  that  money,  when  it 
is  taken  from  the  bank,  should  be  represented  by  some  form  of 
an  obligation. 

What  the  Trade  Acceptance  Is  Not. — A  trade  accept- 
ance cannot  be  made  to  cover  professional  services,  com- 
missions, sales  of  stocks,  or  any  debts  not  incurred  through 
the  * '  purchase  of  goods  from  th^  drawer. ' '  It  should  not 
cover  a  past-due  account,  because  it  distinctly  represents  a 
current  merchandise  credit  transaction. 


16  ACCEPTANCES 

The  average  business  man  is  apt  to  class  it  with  similar 
papers  familiar  to  him,  with  the  exception  of  the  common 
check  or  voucher.  On  first  receiving  the  trade  acceptance 
attached  to  the  invoice  or  statement,  his  memory  naturally 
reverts  to  past  experience,  and  he  thinks  immediately  of 
the  ''sight  draft  attached"  which  he  has  received  when 
goods  were  sold  to  him  * '  cash  on  delivery. ' '  But  the  trade 
acceptance  in  its  very  essence  differs  from  any  kind  of 
document  pertaining  to  a  "cash"  transaction,  for  it  is 
specifically  designed  to  afford  an  equitable  means  of  selling 
on  credit.  It  is  equally  far  from  a  sight  draft  drawn  by 
the  seller  on  the  buyer  to  close  an  account,  usually  overdue 
or  unsatisfactory  as  to  payment.  The  trade  acceptance  is 
brought  into  being  when  the  goods  are  sold,  on  definite 
terms  clearly  stated  on  the  face  of  the  acceptance,  which 
are  part  of  the  understanding  entered  into  by  the  buyer 
when  he  writes  his  acceptance  across  the  face  of  the  in- 
strument. 

The  trade  acceptance  evidently  differs  from  the  *'note" 
of  a  buyer,  which,  though  useful  in  its  proper  field,  can 
represent  any  debt,  which  may  have  stood  for  any  length 
of  time  and  which  usually  bears  interest  or  calls  for  dis- 
count. The  trade  acceptance  differs  radically  in  make-up 
from  any  note,  since  it  is  made  by  and  signed  by  the  seller, 
instead  of  the  buyer  (who  later  accepts  it).  It  must  be 
made  out  at  the  time  of  buying  goods  or  soon  after  the 
shipment  of  them.  It  cannot  be  made  for  any  purpose 
but  to  pay  for  goods  sold  the  acceptor  (buyer)  by  the 
drawer  (seller)  and,  unlike  a  note,  it  cannot  be  renewed 
or  extended. 

It  is,  therefore,  very  evident  that  it  is  a  "gilt-edge" 
credit  paper  and  cannot,  under  its  restrictions,  get  into 
the  doubtful  credit  class,  Tior  can  its  existence,  properly, 
be  construed  by  a  banker  or  any  one  else  as  a  reflection  on 
a  buyer's  credit  standing — in  fact,  it  should  rather  be  in- 


WHAT  IS  A  TRADE  ACCEPTANCE  17 

terpreted  the  other  way,  and  should  put  the  acceptor  into 
the  preferred  class  of  credit  buyers,  or  at  least  next  to  those 
who  discount  their  bills  for  cash.  This  is  fully  borne  out 
by  the  original  ruling  and  definition  of  its  creator,  the 
Federal  Reserve  Board,  when  according  approval  to  a 
"preferential  discount  over  other  classes  of  commercial 
paper. ' ' 

Credit  agencies  and  bankers  state  that  the  trade  accept- 
ance creates  another  class  of  credit  rating,  and  they  class 
buyers  as  follows: 

1.  Those  who  discount  for  cash. 

2.  Those  who  pay  by  trade  acceptance. 

3.  Those  who  pay  on  open  account. 

Its  Facility  for  Discount. — It  has  been  made  clear  that 
the  trade  acceptance  is  a  two-name,  merchandise-credit, 
commercial  paper,  and  is  often,  of  the  same  class  of  names 
most  readily  discounted  by  a  banker. 

It  can  sometimes  be  used  to  increase  the  "line  of  dis- 
count" of  the  seller,  as  well  as  the  line  of  credit  of  the 
buyer.  It  conflicts  little  with  the  handling  of  the  borrow- 
er's own  notes,  or  "line  of  credit,"  when  the  latter  are 
based  on  inventory  or  investment.  One  reason  for  this  is 
that  the  banker  recognizes  the  trade  acceptance  not  as  the 
seller's  obligation,  but  that  he  will  look  to  the  buyer,  at 
least  primarily,  for  payment  and  that  the  buyer,  in  theory 
if  not  in  fact,  will  pay  from  the  proceeds  of  the  goods 
sold  to  him  by  the  seller,  and  not  from  working  or  fixed 
capital. 

The  average  banker  also  takes  into  account  that  accept- 
ances carry  a  widely  diversified  risk;  that  is,  they  are  to 
be  paid  in  comparatively  small  amounts  by  buyers  who 
are  usually  in  various  localities  and  often  in  different 
trades.  The  banker,  therefore,  knows  from  past  experience 
that  his  risk  is  thus  very  much  less  than  if  he  had  to  look 


18 


ACCEPTANCES 


iii 


I-! 
Ill 


TRADE   ACCEPTAJNCK 


%o 


January  1,   IP 


mnaty  nina  anfl 


<gc   Th>.   P«rBr  wnia,    Tne. °1_ 

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I       -   -qo/lOQ.  -   -2)oUatd. 


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3L-tro 


A  TRADE  ACCEPTANCE 


Is  an  acknowledgment  of  a  debt  by  the  buyer  in  favor  of  the  seller,  for  merchandise  tha:  the  seller 
had  placed  in  the  hands  of  the  buyer.  The  buyer  agrees,  in  writing  across  the  face  of  this  acceptarKe 
his  ruime.  the  name  and  location  of  his  own  bank  and  the  date,  to,  pay  the  amount  of  this  certain 
irxJebtedness  at  a  certain  time  at  his  own  bank. 


This  1 

According  i 
Acceptance   Incre^ 


from  the  open  book 


lethod  only  in  giving  the  debt  a  rtegotiabte  value 


a  FEDERAL  RESERVE  BANK  GOVERNORS  OPINION,  the  signing  of  an 
the  financial   standing  of  the  giver,  because  it  shows  prompt  paying  methods. 


Kindly  sign  attachiid  Acceptance,  then  forward  to  t 


Figure  2. 


Trade  Acceptance  Poem  op  the  National  As- 
sociation   OF    Credit    Men 


to  one  firm,  of  the  same  credit  standing,  to  pay  the  sum 
total  of  the  trade  acceptances  he  is  discounting,  while, 
under  all  circumstances,  he  has  the  seller's  guarantee 
through  endorsement  of  the  paper. 

Seller's  Contingent  Liability. — It  is  true  that  when  the 
seller  indorses  a  trade  acceptance  over  to  the  banker  for 


WHAT  IS  A  TRADE  ACCEPTANCE 


19 


Figure 


Reverse  of  Figure  2 


discount  or  collection,  he  assumes  the  liability  to  pay  it 
if  the  buyer  fails  to  do  so,  but  this  contingent  liability,  it 
has  been  proved,  is  only  proportionate  to  his  care  in  grant- 
ing his  customers  credit,  and  the  records  of  an  average 
credit  department  show  it  is  practically  a  negligible  quan- 
tity. A  manufacturer  stated  to  a  convention  that  his  loss 
from  trade  acceptance  credits  of  over  $1,200,000  was  3/100 


20 


ACCEPTANCES 


■tlfi! 


?  qq.oo 


Jannary  l.iq    aft 
ninety  Bine  and 


The  Business  Bourse 

SL     ^1   d   3    ^   'i?   Mhov.   1. 


Jha  Paper  Mma.   Ino. ^  I?    §    °'  ^i  oi^fW 

250  Broadway, og    z^    ;/^    c\(--  ^i  j^t5;-j 


flea   Yorlf   City.    W.Y. 


■fIJ  j31' 


ji/^J%iAP^i,(JB^r^^,^ 


FiGUEE  3,    Standard  Form  Trade  Acceptance  Designed  by  the 
Business  Bourse 

of  1  per  cent,  against  27/100  of  1  per  cent  on  his  total 
credits. 

It  can  be  believed  that  this  view  must  be  sound,  since 
the  Federal  Reserve  Law  and  the  Federal  Resei-^^e  Board 
rulings  recognize  that,  since  the  obligation  is  not  of  the 
drawer  but  of  the  drawee,  the  paper  is  not  the  drawer's 
and,  therefore,  the  banks  can  discount  trade  acceptances 
for  their  clients  to  as  large  an  amount  as  they  deem  ad- 
visable. In  the  smaller  centers  this  operates  to  help  the 
small  banks  and  their  customers,  because  such  borrowers 
may  get  a  much  more  adequate  line  of  credit  without  the 
necessity  of  going  to  banks  in  other  cities  or  of  selling  their 
notes  to  brokers,  or  even  of  being  obliged  to  resort  to  hy- 
pothecating their  accounts,  often  at  high  rates. 


WHAT  IS  A  TRADE  ACCEPTANCE 


21 


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The  Business  Bourse 


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"<  M  -i 


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«.    Yni-V    nity,     N.Y. 


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Knv.    1,  lai 

PAY  TO  THE  ORDER  OP  OURSELVES 

-------    -no/lOO    nniiAws 

THE  BUSINESS  BOURSE  int.inc 


FlGlTRE    3A.      EeVERSE    OF   FIGURE   3 

Forms  of  Trade  Acceptance  Eligible  for  Rediscount. — 

No  specific  form  for  a  trade  acceptance  has  been  defined 
or  recommended  by  the  Federal  Reserve  Board,  although 
the  rulings  show  that  a  certain  wording,  or  its  equivalent, 
must  be  a  part  of  a  trade  acceptance  eligible  for  rediscount 
by  a  Federal  Reserve  Bank.  The  phrase,  or  its  equivalent, 
w^hich  the  ruling  specifically  requires  is  that  "the  obliga- 
tion of  the  acceptor  hereof  arises  out  of  the  purchase  of 
goods  from  the  drawer."  Another  statement  on  the  ac- 
ceptance that  is  considered  desirable  is  that  the  acceptance 
''may  be  made  payable  at  any  bank,  banker,  or  trust  com- 
pany in  the  United  States  designated  by  the  acceptor." 

A  form  of  acceptance  indorsed  by  the  American 
Acceptance  Council  and  approved  by  the  Federal  Reserve 
Board  is  shown  in  Figure  1.     This  council  has  not  recom- 


22  ACCEPTANCES 

mended  any  specific  form  of  explanatory  data  or  memo, 
attached  but  has  indicated  thereon  the  method  of  com- 
pleting- the  acceptance.  This  form  has  been  adapted  and 
adopted  by  many  firms  and  banks  throughout  the  United 
States. 

Figurd  2  is  a  form  which  has  been  advocated  by  the 
National  Association  of  Credit  Men,  with  no  practical 
changes,  almost  since  the  first  trade  acceptance  was  cre- 
ated under  the  Federal  Eeserve  rulings.  It  is  a  legal  and 
practical  form  with  memo,  records  for  both  seller  and 
buyer.  These  records  are  filled  in  by  hand,  not  as  carbon 
copies  of  the  original. 

Standard  Form  of  Acceptance  Furnishing  Carbon  Copy. 
— The  following  standard  form  of  trade  acceptance  (Fig- 
ure 3)  has  been  submitted  to  the  Federal  Reserve  Board, 
which,  in  approving  it,  states: 

The  Boai'd  is  of  the  opinion  that  the  acceptance  is  very  satis- 
factory and  has  no  changes  to  suggest. 

Its  practical  advantages  and  the  Board's  full  approval 
of  this  form  as  to  detail  are  shown  in  other  chapters.  This 
form  is  suitable  for  use  by  any  firm,  and  forms  a  complete 
record  for  buyer  as  well  as  seller.  As  many  duplicate 
carbon  copies  as  desired  may  be  made,  when  the  original 
is  made  out,  for  records  or  follow-ups.  Users  of  this  book 
are  at  liberty  to  reprint  this  form  for  their  use. 

When  the  Trade  Acceptance  Is  a  Completed  InstruinenD. 
— When  the  buyer  has  "accepted,"  he  has  merely  to  return 
the  acceptance  which  he  has  completed  to  the  seller  or  firm 
which  has  "drawn"  the  acceptance  on  him.  The  seller 
then  has  the  original  acceptance  and  the  buyer,  when  a 
duplicate  is  furnished  for  his  record,  as  on  the  reverse  of 
the  memo,  slip  provided  on  the  Standard  Forms  of  accept- 
ance (Figures  2  and  3),  may  have  a  carbon  for  his  record. 
The  trade  acceptance,  when  received  by  the  drawer,  is  now 


WHAT  IS  A  TRADE  ACCEPTANCE  23 

a  completed  instrument,  and  must  bear  revenue  stamps 
placed  thereon  by  the  drawer,  as  per  the  ruling  of  the 
United  States  Revenue  Department  given  in  Chapter  VIII. 

The  drawer,  when  he  receives  the  acceptance  from  the 
buyer,  is  paid  for  his  goods,  just  as  he  would  be  by  a  check, 
note,  or  accepted  draft,  and  has  recourse  on  that  paper 
thereafter,  and  not  on  an  open  account,  as  explained  more 
fully  in  Chapter  IX. 

The  Acceptance's  Place  and  Purpose. — From  the  fore- 
going brief  discussion  of  the  trade  acceptance  it  is  evident 
that  it  is  meant  to  facilitate  and  liquefy  merchandise  credit 
transactions,  and  that  it  in  no  way  affects  short-term  spot 
cash  or  cash  discount  sales.  Its  chief  purposes  for  the 
buyer,  seller,  and  business  in  general  are  discussed  under 
separate  headings  as  well  as  the  scope  and  history  of  the 
banker's  acceptance. 

The  following  chapters  will  show  what  to  do  with  the 
acceptance  and  how  to  do  it. 


CHAPTER  III 

ACCEPTANCE    PROCEDURE    IN    CANADA    AND    EUROPE 

Use   of   Trade   Acceptances    in   European    Countries. 

— In  Europe  there  have  not  arisen  the  conditions  and 
necessities  which  would  fix  on  its  business  men  the  un- 
democratic and  unwieldy  form  of  large  cash  discounts  with 
the  open  accounts  credit  system,  prevailing  generally  in 
the  United  States  of  America  since  the  Civil  War. 

Those  who  are  familiar  with  the  methods  of  finapcing 
merchandise  transactions  in  Europe,  as  well  as  in  Canada, 
are  fully  aware  that  the  *' merchandise  bill,"  "trade  bill," 
"bill  of  exchange,"  "bank  bill,"  "finance  bill,"  or  other 
time  bill,  under  various  names,  is  in  almost  universal  use 
there  as  the  basis  of  credit. 

An  important  digest  of  the  development  of  the  accept- 
ance and  the  free  market  for  it  in  Europe  says: 

Though  it  is  not  possible  to  determine  with  any  degree  of  cer- 
tainty when  a  free  discount  market  began  to  develop,  it  is  im- 
possible to  imagine  such  a  market  without  a  properly  organized 
central  banking  institution.  In  Europe,  the  principal  central 
banks  were  at  one  time  little  more  than  bankers  to  the  govern- 
ment and  had  little  regard  for  the  requirements  of  industry  and 
commerce.  When  gradually  a  sounder  \dew  in  public  finance 
began  to  prevail  and  in  the  first  half  of  the  past  century  the 
growing  importance  of  international  commerce  became  manifest, 
more  attention  began  to  be  paid  to  the  organization  of  banking 
along  lines  beneficial  to  the  business  community.  With  the  gi'ow- 
ing  importance  of  foreign  trade,  the  establishment  of  special 
banking  institutions  and  commercial  houses  for  trade  and  finance 
overseas  was  a  natural  development.  Hand  in  hand,  therewith, 
went  an  increasing  volume  of  bills  of  exchange  to  be  handled, 

24 


PROCEDURE  IN  CANADA  AND  EUROPE   25 

and  between  1830  and  1850  a  number  of  the  leading  joint  stock 
banks  were  established.  We  also  find  that  a  number  of  private 
houses,  especially  dedicating  themselves  to  the  financing  of  mer- 
cantile business,  were  established  around  that  time  in  England. 
It  was  not,  however,  until  some  time  later  that  the  first  discount 
company  was  established,  namely,  the  National  Discount  Com- 
pany, in  1856,  with  the  object  of  dealing  in  bills  of  exchange. 

Figures  are  often  quoted  to  show  the  use  and  scope  of 
the  acceptance  in  Europe,  but  it  may  be  considered  as 
almost  universal,  in  one  form  or  another. 

An  individual  acceptance  is  not  usually  drawn  for  a 
sum  larger  than  $5,000  in  order  to  find  a  ready  discount 
market,  and  they  run  as  low  as  $1.00,  notably  in  France, 
where,  it  is  said,  the  system  extends  do^\^l  to  the  man 
who  keeps  the  stand  on  the  street  corner  and  who  often 
gives  an  acceptance  in  buying  his  daily  stock  in  trade.  Re- 
liable figures  are  quoted  to  show  that,  out  of  the  several 
billions'  worth  of  such  paper  handled  in  a  year  by  the 
Bank  of  France,  one-half  of  it  is  in  denominations  of  $20 
or  less,  and  the  average  "bill"  is  little  in  excess  of  $100. 
Approximate  conditions  could  be  quoted  in  Great  Brit- 
ain and  Germany,  and,  to  a  modified  degree,  in  other  Euro- 
pean countries,  as  well  as  in  Canada. 

Trade  acceptances,  or  bills,  are  taken  and  held  by  large 
and  small  business  men  in  France  and  other  European 
countries  until  again  passed  out  (less  discount  not  earned), 
as  currency  would  be  handled ;  but  in  the  meantime,  while 
holding  the  acceptance,  the  holder  is  earning  his  share  of 
the  discount,  or  interest,  which,  though  small  (as  low  as 
3%  per  cent  per  annum  previous  to  the  war)  is  an  item 
that  his  thrift  does  not  disregard. 

It  is  conceded  that  a  much  larger  volume  of  business  is 
done  in  England  and  other  foreign  countries  on  a  sim- 
ilar amount  of  fixed  capital,  than  in  the  United  States,  and 
on  at  least  as  safe,  if  not  a  safer,  basis.     As  capital  turn- 


26  ACCEPrANCES 

over  is  an  important  element  of  the  cost  of  doing  busi- 
ness, so  this  result  is  worthy  of  careful  consideration  and 
emulation,  so  far  as  consistent  with  conditions  in  this 
country. 

It  is  not  possible,  nor  is  it  the  intention,  in  the  brief 
space  available  in  this  volume,  to  go  deeply  into  the  sys- 
tems or  detailed  methods  of  financing  mercantile  transac- 
tions in  other  countries.  It  is  intended  merely  to  point 
out  the  chief  similarities  or  differences  between  the  sys- 
tems and  methods  of  the  United  States  and  its  chief  com- 
mercial rivals,  with  a  view  to  helping  the  American  banker 
and  business  man  to  apply  any  favorable  methods  which 
now  prevail  "over  there." 

Experience  of  Representative  Canadian  Firms  with  the 
Acceptance  System. — A  resume  of  the  principal  methods 
and  details  of  Canadian  credit  procedure  may  be  of  par- 
ticular interest  to  the  student  of  our  system  in  pointing 
out  to  him  ways  to  take  advantage  of  our  facilities,  through 
consideration  of  those  which  have  proved  of  advantage  to 
our  near  neighbor  during  the  last  25  years  or  more. 

Many  years'  experience  with  a  system  is  probably  the 
most  convincing  test  of  its  practicability.  A  letter  on  this 
subject  received  from  a  representative  Canadian  manu- 
facturer and  jobber  follows: 

This  system  (acceptances)  enables  us  to  get  our  accounts 
closed  promptly,  and  overcomes  the  evil  of  customers  taking  dis- 
counts after  the  discount  period  has  expii-ed.  At  the  end  of 
each  month  we  make  out  statements  for  all  accounts,  and  on 
these  statements  figure  out  the  drafts  which  are  made  from  the 
statements.  The  statements  are  then  mailed  to  the  customers 
and  the  drafts  sent  to  the  bank,  and  by  the  time  the  drafts 
reach  the  customers  (through  the  banks)  they  have  had  an  op- 
portunity to  check  up  the  statements,  and  if  there  are  any  dis- 
crepancies, they  are  able  to  advise  us. 

Our  bankers  give  us  a  receipt  for  all  the  drafts  which  we 


PROCEDURE  IN  CANADA  AND  EUROPE   27 

give  them  for  collection,  and  these  are  credited  to  our  account 
when  they  have  been  paid.  The  bank  has  instructions  to  return 
the  draft  immediately,   if  same  is   not  accepted.    We   do   not 


*1-1Q 


..Jim  — Hfl/Tnn 


C.I  \i\,n  .  C  /^    / 


'\      i^E     EA.-X  OP  KM^iuui. "°Bm»l.  giin. /         »oimiKXmxxmzxxraxKii 


riTC  gPTORCT  »■;<   TTimTY  TOm  ..  <l7/inn 


Ottawa.   OntpyjQ,  j 


Figures  4,  5,  and  6.    Typical  Drafts  or  Acceptances  op  a 
Canadian  Manufacturer 

discount  any  of  our  drafts,  although  if  we  required  the  funds 
we  would  be  able  to  do  so. 

We  think  that  the  majority  of  Canadian  manufacturers  and 
wholesalers  have  some  such  method  of  making  their  collections. 


28 


ACCEPTANCES 


A  sTovn  .'lANvrAcnmrn 


Record  of  Bills  RECErvABLE 


~±^ 


su^-&- 


£fk 


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eijie 


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Figure  7.    Acceptance  Eegister  or  Eecord  of  Bills  Receivable 
OP  A  Canadian  Manufacturer 


Figures  4,  5,  and  6  are  reproductions  of  forms  of  the 
foregoing  firm,  consisting  of  three  "time  drafts,"  or  ac- 
ceptances, at  sight,  30  and  60  days,  respectively,  drawn  on 
the  buyer  by  the  seller,  payable  to  the  bank  of  the  seller 
(drawer).  In  the  first  two  cases  the  bank  of  the  buyer  is 
designated,  in  the  last  it  is  not.  This  draft  must  be  ac- 
cepted by  the  drawee  (buyer)  to  complete  the  instrument, 
although  a  bank  in  Canada  will  usually  discount  it  before 
acceptance. 

Figure  7  is  a  "record  of  bills  receivable"  of  this  Cana- 
dian manufacturer.  It  is  very  complete  and  carefully 
worked  out  as  to  details,  much  more  so  than  the  majority 
of  American  bookkeeping  records  for  the  same  purpose, 
since  the  latter  are  usually  kept  more  as  memo,  records  of 
detail  and  the  entries  are  later  transferred  in  bulk  to  the 
permanent  records.  This  is  made  necessary  by  the  large 
number  of  accounts  and  items  handled  in  the  United  States 
and  the  fact  that  only  a  portion  of  the  acceptances  sent 
out  are  returned  completed  by  the  buyers  of  the  goods 
they  cover. 

An.  elaborate  record,  similar  to  this  one,  might  be  pos- 
sible for  firms  in  the  United  States  not  having  heavy  trans- 
actions in  acceptances. 


PROCEDURE  IN  CANADA  AND  EUROPE   29 


STOTK    UAHUFACTUBEX 


rot  TMt  t^ 


XVnviLTrVtc L» 


Figure  7. 


Acceptance  Register  or  Record  of  Bills  Receivable 
OF  A  Canadian  Manufacturer 


Experience  of  a  Canadian  Jobbing  House. — The  follow- 
ing is  a  very  interesting  comment  by  a  Canadian  hard- 
ware jobbing  house  on  methods  used  for  30  years  and  re- 
sults achieved  by  them  through  the  use  of  the  trade  bills, 
or  notes : 

We  have  endeavored  to  close  as  many  of  our  accounts  as 
possible  each  month  by  note  or  draft,  for  over  30  years.  We 
render  a  monthly  statement  to  all  our  customers  who  have  pur- 
chased goods  during  the  previous  month  and  we  are  of  the  opin- 
ion that  of  those  customers  not  taking  advantage  of  the  cash 
discount,  fully  90  per  cent  close  their  accounts  monthly  with 
either  promissory  notes  or  an  accepted  draft  at  three  months 
from  the  average  date. 

The  blank  form  promissory  notes  we  enclose  with  the  monthly 
statement,  or  if  the  account  is  usually  closed  by  a  three  months' 
draft,  we  forward  the  draft,  for  acceptance  and  return  to  us, 
through  our  bank  here. 

When  these  notes  and  accepted  drafts  are  returned  to  us  we 
credit  them  up  to  the  accounts  of  the  different  customers  and 
debit  bills  receivable  account.  We  do  not  discount  their  paper 
but  hold  it  at  our  office.  If  it  is  made  payable  at  our  office  we 
retain  it  here  to  maturity;  if  it  is  payable  at  the  customer's 
bank  we  hold  it  here  until  three  days  before  maturity  when  we 
deposit  it  through  our  own  bank  here,  crediting  it  up  through 
the  cash  book  to  bills  receivable  account. 

Only  a  small  percentage  of  these  acceptances  and  promissory 
notes  are  not  met  at  maturity,  but  where  any  of  them  are  not 


30 


ACCEPTANCES 


paid  in  full  during  the  current  month  of  their  maturity,  they 
are  recharged  to  the  customer's  account  and  credited  to  bills 
receivable.  Or  if  they  have  been  deposited  in  our  bank  and  are 
returned  unpaid,  we  give  our  bank  a  cheek  for  them  and  charge 
them  to  the  customer's  account. 

We  prefer  to  have  as  many  accounts  as  possible  closed  each 
month  in  this  manner,  as  it  is  our  experience  that  payments 
are  made  more  promptly  when  attended  to  in  this  manner.  We 
do  not  give  any  preferential  discount  or  any  pi'eferential  terms 
for  acceptance  of  draft. 

The  acceptance  shown  in  Figure  8  is  a  typical  form  of 
a  Canadian  banking  institution. 


UBoF  c\  D  R. 


e^. 


Figure  8.    Typical  Canadian  Draft  or  Trade  Acceptance  Form 


Principles  and  Procedure  in  Canadian  Credits. — A  Ca- 
nadian firm,  unless  exceptionally  large  or  having  a  very 
extended  business,  provides  for  its  credits  through  an  an- 
nual arrangement  (based  upon  its  statement)  with  one 
bank,  not  several  financial  institutions,  as  is  often  the  case 
in  this  country. 

Although  every  one  in  Canada,  either  in  trade  or  bank- 
ing, understands  the  procedure  and  advantage  of  trade 
paper,  or  acceptances,  their  credit  is  not  limited  to  this 
one  type  of  loan ;  but  a  regular  ' '  line  of  credit, ' '  secured 
by  single-name  promissory  notes,  is  arranged  annually  with 
the  bank  to  furnish  working  capital.     To  guard  carefully 


PROCEDURE  IN  CANADA  AND  EUROPE   31 

against  this  line's  being  used  for  "fixed"  capital,  it  is 
checked  up  with  the  firm's  investment  in  quick  assets, 
and  it  is  expected  that  it  will  be  cleaned  up  or  greatly  re- 
duced at  seasons  of  lowest  inventory  showing. 

As  their  trade  paper,  or  acceptance,  includes  renewable 
notes  of  their  customers,  it  is  also  w^atched  closely  to  see 
that  it  does  not  exceed  the  correct  proportion  for  the  sales 
outstanding  at  that  season  of  the  year.  As  the  trade  ac- 
ceptance of  the  United  States  represents  a  current  transac- 
tion and  is  not  renewed,  it  furnishes  a  better  medium  for 
careful  judgment  by  our  banks  than  does  the  rather  vari- 
able basis  of  the  Canadian  trade  paper. 

Hypothecating  Accounts  with  Banks  and  Discounting 
before  Acceptance. — In  Canada,  as  in  this  country,  no  ade- 
quate plan  seems  to  have  been  evolved  to  obtain  acceptances 
from  the  biggest  buyers,  who  settle  by  their  own  check, 
banker's  check,  or  sight  draft  on  cash  terms  at  maturity. 
These  accounts  are  often  hypothecated  to  the  bank,  which 
lends  against  them,  taking  a  draft  against  the  firm  owing 
the  account,  and  holding  it  until  maturity  or  until  it  is 
liquidated  through  remittance  of  the  buyer  to  the  seller, 
who  then  settles  with  the  bank.  Such  accounts  are  as- 
signed to  the  bank,  which  has  a  recognized  lien  thereon. 

Lodging  trade  paper  with  the  bank  before  acceptance 
and  having  it  discounted  at  once,  before  it  is  sent  to  the 
buyer  for  acceptance,  is  a  Canadian  custom  which  is  safer 
there  than  it  would  be  in  this  country,  because  there  the 
acceptance  of  the  bill  is,  through  custom,  practically  a 
foregone  conclusion ;  while  in  this  country  no  such  uni- 
formity of  practice  has  as  yet  been  arrived  at,  and  such 
procedure  would  necessitate  a  much  larger  percentage  of 
charge-backs  of  unaccepted  drafts  than  occurs  in  Canada. 

Where  there  is  any  doubt  as  to  the  acceptance,  the  ac- 
ceptances are  sent  forward  for  "acceptance  and  return," 
and  discounted  upon  return,  if  accepted. 


32  ACCEPTANCES 

Cash  terms  in  Canada  are  not  of  the  elastic  variety  often 
current  in  this  country.  Holding  a  buyer  to  the  exact 
cash  terms  is  accomplished  by  sending  drafts  with  bill 
of  lading  attached  when  the  credit  is  not  thoroughly  es- 
tablished, or  often,  short-term  drafts  or  acceptances  which 
limit  the  coverage  of  "cash  terms"  to  the  exact  time  des- 
ignated. It  appears  that  the  use  of  such  methods  in  this 
country  would  tend  to  make  payment  on  cash  terms  con- 
form more  nearly  to  time  for  payment  as  stated,  at  least 
when  it  can  be  ascertained  on  what  terms  the  buyer  is  to 
pay,  and  when  the  distance  in  transit  of  the  collection 
would  not  exceed  the  time  offered  for  cash. 

Current  Acceptance  Customs  in  European  Countries. 
— Great  Britain. — In  London  and  other  English  markets, 
several  kinds  of  "bills"  (acceptances)  are  dealt  in.  The 
two  constituting  the  greatest  bulk  of  these  transactions  are 
the  "trade  bill,"  which  is  practically  identical  with  the 
trade  acceptance  of  the  United  States ;  and  the  finance  bill, 
which  may  represent  different  classes  of  transactions,  such 
as  exchange  transactions,  the  carrying  of  stocks  of  goods, 
or  securities,  or  other  financial  transactions,  or  which  may 
be  merely  "accommodation  paper."  When  drawn  for  the 
latter  purpose,  it  is  not  rediscountable  at  the  Bank  of 
England  as  are  the  other  finance  or  trade  bills. 

The  foundation  of  the  English  acceptance  market  is  the 
acceptance  drawn  on  and  accepted  by  a  banker;  and  such 
"prime"  bills,  in  practically  unlimited  quantities,  com- 
mand the  readiest  markets  and  the  lowest  rates  obtainable. 
The  laws  governing  the  handling  of  these  matters  by  the 
banks  are  not  strict,  but  the  customs  are  very  rigid,  and 
the  banks  govern  themselves  accordingly. 

The  Bank  of  England  does  not  buy  acceptances  if  pay- 
able out  of  the  country,  and  all  bills  purchased  must  bear 
one  British  name  beside  that  of  the  British  acceptor. 
The  rate  is  governed  on  the  theory  of  supply  and  demand 


PROCEDURE  IN  CANADA  AND  EUROPE   33 

and  is  fixed  weekly  by  the  Bank  of  England  on  domestic 
bills. 

Foreign  bills  or  acceptances  in  large  quantities,  are  dealt 
in  freely,  and  ability  to  discount  and  the  rates  are  regu- 
lated by  supply  and  demand,  as  well  as  the  security  back 
of  the  paper  and  the  time  it  requires  to  transmit  funds 
from  point  of  collection,  for  which  interest  is  usually 
charged  the  buyer. 

Open  accounts,  in  both  foreign  and  domestic  commercial 
credit,  are  used  in  Great  Britain,  principally  with  buyers 
of  high  standing  or  those  who  buy  on  cash  terms.  When- 
ever possible  sellers  aim  to  close  all  credits  with  accepted 
draft  or  promissory  note  for  not  over  three  months.  In- 
formation from  some  sources  tends  to  show  that  the  use 
of  open  accounts  is  quite  prevalent  in  certain  trades. 

France. — Although  in  Great  Britain  and,  to  a  lesser  ex- 
tent, in  Germany,  the  bankers'  acceptance,  or  bill  accepted 
by  a  bank,  is  the  most  sought-after  and  used  form  of  clos- 
ing credit,  in  France  the  individual  firm's  acceptance,  or 
trade  acceptance,  is  the  one  in  most  common  use.  These 
acceptances  must  bear  three  names,  of  whom  two  must  be 
of  residents  of  France  of  good  financial  standing  (solvent), 
to  be  discountable  at  any  of  the  500-odd  branches  of  the 
Bank  of  France.  Private  banks  buy  two-name  acceptances 
freely  and,  by  indorsing  them,  can  rediscount  them  at  the 
Bank  of  France  in  a  similar  manner  to  rediscount  of  trade 
acceptances  in  the  United  States  by  member  banks  with 
Federal  Reserve  Banks.  Private  bank  charges  for  accept- 
ance vary  around  one  quarter  of  one  per  cent  for  three 
months. 

Commercial  paper,  together  with  silver  and  gold,  forms 
the  basis  for  the  issue  of  French  banknotes ;  and  prime 
paper  is  used  almost  as  currency  and  is  interchangeable, 
under  certain  conditions,  with  currency.  The  open  ac- 
count and  bank  check  are  little  known  or  liked  in  France, 


34  ACCEPTANCES 

and  commerce  there  is  almost  universally  on  an  acceptance 
basis. 

Germany. — Before  the  war  Germany  developed  to  a  high 
degree  the  acceptance  principle  in  settlement  of  its  trade 
obligations,  both  domestic  and  foreign.  The  domestic  bills 
ran  mostly  between  30  and  90  days,  but  some  of  the  for- 
eign bills  were  for  a  much  longer  period.  These  foreign 
acceptances  often  finance  an  export  agent  rather  than  the 
original  manufacturers,  especially  if  the  latter  do  not  deal 
directly  with  the  foreign  buyer,  but  get  settlement  from 
the  export  agent  usually  in  30  days. 

On  account  of  the  bankers'  acceptance  being  considered 
a  higher  grade  of  credit  than  the  average  trade  bill,  or 
acceptance,  it  is  used  in  Germany  very  largely  in  impor- 
tant commercial  transactions. 

The  trade  bill,  or  "wechsel,"  is  in  use  in  approximately 
all  domestic  settlements  between  buyers  and  sellers,  in 
which  a  banker  does  not  intervene  to  make  a  bankers'  ac- 
ceptance, and  it  is  subject  to  such  drastic  laws  that  the 
buyer  takes  the  debt  very  seriously,  for  under  certain  con- 
ditions he  is  liable  to  imprisonment  for  not  living  up  to 
his  acceptance  obligations. 

The  chief  activity  of  the  Reichsbank,  or  central  bank 
(privately  owned,  but  under  Government  control),  was 
discounting  these  trade  bills.  A  very  active  and  free  mar- 
ket is  maintained  at  all  times  for  all  classes  of  good  ac- 
ceptances. 

Other  foreign  countries. — Other  countries,  including  all 
the  Continental  countries  and  other  leading  commercial 
nations  like  Japan  and  independent  or  semi-dependent 
states,  as  well  as  the  South  American  republics,  follow 
quite  closely  the  procedure  of  Great  Britain,  France,  or 
Germany. 

Summaxy  of  Procedure  in  Leading  Commercial  Nations. 
— The  procedure  of  practically  all  commercial  nations,  ex- 


PROCEDURE  IN  CANADA  AND  EUROPE   35 

cepting  our  own,  may  be  described  by  saying,  "They  are 
on  an  acceptance  basis."  In  each  country;  as  is  natural, 
various  differences  of  plan,  method,  or  detail  have  grown 
up  with  the  development  of  their  commercial  system,  ac- 
cording to  the  needs  of  their  people  and  trade. 

Some  nations  follow  the  British  custom  of  bankers'  bills 
and  more  limited  time,  especially  in  foreign  transactions ; 
while  others  lean  toward  the  German  plan  of  close  co- 
operation between  seller,  buyer,  and  bank,  often  resulting 
in  long-time,  or  special,  credit  terms.  Still  others  follow 
the  methods  of  France  and  her  democratic  system  of  large 
and  small  trade  acceptances;  while  in  Canada  each  firm  is 
usually  financed  by  one  bank  through  acceptances  and 
notes. 

United  States  Can  Build  Her  Own  Procedure. — It  is 
perfectly  possible  for  our  merchants  and  bankers  to  build 
up  a  satisfactory  system  of  acceptance  credits  best  suited 
to  the  needs  and  conditions  of  our  country,  commerce,  and 
banking  systems.  It  should  be  of  great  assistance  to  us 
in  accomplishing  a  satisfactory  result,  that  we  have  before 
us  the  experience  and  matured  methods  of  the  great  na- 
tions of  the  world  upon  which  to  base  our  deductions  and 
finished  plans. 

In  the  Federal  Reserve  Act,  amendments,  and  rulings 
thereon  by  the  Federal  Reserve  Board,  the  commerce  of 
this  country  has  not  only  an  exact  but  a  very  broad  and 
effective  plan  to  work  upon,  which  ensures  closest  coopera- 
tion and  generous  assistance  to  American  business  men 
and  bankers  by  the  central  Government  through  the  ex- 
tensive Federal  Reserve  System. 

An  authority  on  banking  and  commercial  finance  said 
at  the  close  of  the  world  war : 

We  have  witnessed  the  efficiency  of  our  Federal  Reserve  Bank- 
ing' System,  which  has  been  characterized  by  Sir  Edward  Holden 
as  a  banking  system  which  surpasses  in  strength  and  in  excel- 


36  ACCEPTANCES 

lence  any  other  banking  system  in  the  world.  England,  with 
relatively  small  gold  reserves,  has  been  preeminent  in  the  finan- 
cial and  commercial  world,  and  London  has  been  the  world's 
money  center,  largely  through  her  well-organized,  elastic  com- 
mercial credit  system,  in  which  the  self-liquidating  commercial 
bill  of  exchange  has  been  a  predominating  factor.  Well-or- 
ganized commercial  credit  will  be  the  life-blood  of  the  world's 
activities  in  the  reconstructive  days. 


CHAPTER  IV 

ACCEPTANCES  IN  THE  UNITED   STATES 

The  American  banker  and  business  man  need  not  look 
upon  the  acceptance  as  an  interloper  in  the  American 
credit  family,  for  it  is  really  an  elder  brother  to  the  pres- 
ent methods,  since  the  latter  have  only  grown  into  use 
with  this  country's  business  since  the  Civil  War.  The 
Southern  planters  of  cotton  and  tobacco,  as  well  as  other 
business  men  in  the  United  States,  continued  the  use  of 
the  acceptance,  in  its  domestic  or  interstate  form,  prac- 
tically up  to  the  time  of  the  Civil  War,  and  some  of  the 
older  bankers  and  business  men  still  recall  the  common 
use  of  the  acceptances  or  bills  of  exchange  as  used  at  that 
time. 

As  evidencing  the  attitude  of  statesmen  of  the  United 
States  toward  a  commercial  credit  system  adequate  to 
handle  the  transactions  of  commerce,  the  following  quota- 
tion from  a  speech  of  Daniel  Webster,  delivered  before 
the  United  States  Senate  in  1834,  is  interesting.  He  said, 
in  part: 

Commercial  credit  is  the  creation  of  modern  times,  and  be- 
longs in  its  highest  perfection  only  to  the  most  enlightened  and 
best  governed  nations. 

Credit  is  the  vital  air  of  the  system  of  modern  commerce.  It 
has  done  more — a  thousand  times  more — to  enrich  nations  than 
all  the  mines  of  all  the  world.  It  has  excited  labor,  stimulated 
manufacturers,  pushed  commerce  over  every  sea,  and  brought 
every  nation,  every  kingdom,  and  every  small  tribe  among  the 
races  of  men  to  be  known  to  all  the  rest.  It  has  raised  armies, 
equipped  navies,  and  triumphing  over  the  gross  power  of  mere 

37 


'i^^GSR 


38  ACCEPTANCES 

numbers,  it  has  established  national  superiority,  on  the  founda- 
tion of  intelligence,  wealth,  and  well-directed  industry. 

Consistently  with  security,  and  indeed  founded  upon  it,  credit 
becomes  the  great  agent  of  exchange.  It  increases  consumption 
by  anticipating  products,  and  supplies  present  wants  out  of 
future  means.  As  it  circulates  commodities  without  the  actual 
use  of  gold  and  silver,  it  not  only  saves  much  by  doing  away 
with  the  constant  transportation  of  the  precious  metal  from 
place  to  place,  but  also  accomplishes  exchanges  with  a  degree 
of  dispatch  and  punctuality  not  otherwise  to  be  attained. 

All  bills  of  exchange,  all  notes  running  upon  time,  as  well 
as  the  paper  circulation  of  the  banks,  belong  to  the  system  of 
commercial  credit.  They  are  parts  of  one  great  whole.  We 
should  protect  this  system  with  increasing  watchfulness,  taking 
care,  on  the  one  hand,  to  give  it  full  and  fair  play,  and,  on  the 
other,  to  guard  it  against  dangerous  excess. 

Approximately  three  years  after  the  above  address  was 
made,  and  soon  after  the  disastrous  panic  of  1837,  Presi- 
dent Martin  Van  Buren,  in  a  message  to  Congress,  said : 

The  various  transactions  which  bear  the  name  of  domestic  ex- 
changes differ  essentially  in  their  nature,  operation,  and  utility. 
One  class  of  them  consists  of  bills  of  exchange  drawn  for  the 
purpose  of  transferring  actual  capital  from  one  part  of  the 
country  to  another,  or  to  anticipate  the  proceeds  of  property 
actually  transmitted.  Bills  of  this  description  are  highly  use- 
ful in  the  movements  of  trade  and  well  deserve  all  the  encour- 
agement which  can  rightfully  be  given  to  them. 

Reasons  Tending  to  Cause  Disuse  of  Acceptances  since 
the  Civil  War.— The  elimination  of  the  Bank  of  the  United 
States;  the  growth  of  wildcat  banks,  which  sprang  up  at 
the  time ;  the  disruption  of  credits  by  war ;  and  the  forma- 
tion of  post-war  conditions,  all  practically  killed  the  mar- 
ket for  discounting  or  handling  the  acceptance.  This  un- 
settled condition  of  business  at  that  time  made  open  ac- 
count credits  very  risky  and  tended  to  build  up  a  system 
of  high  discounts  for  cash  payment,  which,  together  with 


ACCEPTANCES  IN  THE  UNITED  STATES      39 

open-account  credits  and  one-name  paper  for  discount  pur- 
poses, has  since  remained  the  prevailing  custom. 

The  National  Bank  Act  created  a  stable  currency,  based 
on  the  credit  of  the  government,  in  the  form  of  bonds  and 
gold,  which,  although  a  solid  foundation,  was  a  very  in- 
elastic one,  and  this  act  furnished  no  proper  rediscount 
facilities  or  open  market  for  discounts. 

Although  no  European  nation  has,  for  many  years,  used 
a  similar  national  method  of  credit  and  discount,  this 
situation  endured  in  the  United  States  until  the  passage 
of  the  Federal  Reserve  Act  in  December,  1913,  the  organ- 
ization of  the  Federal  Reserve  Board  and  Federal  Reserve 
Banks,  and  the  opening  of  the  latter  on  November  16,  1914. 

Timely  Passage  of  the  Federal  Reserve  Act. — Although 
currency  and  financial  reform  had  long  been  recognized  as 
a  crying  need  of  the  country  and  had  been  debated  and 
studied  by  Congress  after  Congress,  those  who  saw  its 
necessity  for  the  nation  made  slow  progress  in  overcoming 
the  inertia  and  prejudice  of  the  uninformed  laymen  in 
Congress.  Nevertheless,  the  studies  and  labors  of  the  Con- 
gressional commission  headed  by  Senator  Nelson  A. 
Aldrich  of  Rhode  Island  were  of  inestimable  value  in  de- 
veloping the  basic  principles  of  the  Owen-Glass  bill  as 
finally  formulated  and  introduced  by  its  sponsors.  To 
many  it  has  seemed  almost  providential  that  this  great 
reform  measure,  the  Federal  Reserve  Act,  with  its  ma- 
chinery of  almost  unlimited  power  of  expansion,  was  put 
on  the  statute  books  and  into  operation  practically  coin- 
cidentally  with  the  inauguration  of  what  became  not  only 
the  world's  greatest  war,  but  the  cause  of  the  most  gigantic 
financial  operations  of  all  history.  That  America  was  able 
to  uphold,  during  all  the  war,  her  prestige  as  a  commer- 
cial nation  and  to  add  to  the  laurels  of  financing  her  own 
great  war  operations  those  of  furnishing  cash  and  credit 
to  the  confirmed  lender  nations  is  an  accomplishment  for 


40  ACCEPTANCES 

which  we  may  feel  not  only  just  pride,  but  sincere  thank- 
fulness. 

That  the  reform  of  our  commercial  credit  and  discount 
systems  was  meant  to  be  a  highly  important  and  serious 
function  of  the  Federal  Reserve  Act  is  something  that 
should  be  kept  clearly  in  mind  by  the  bankers  and  busi- 
ness men  of  the  land.  The  use  or  disuse  of  the  privileges 
and  plans  for  acceptances,  as  laid  down  in  this  Act,  is 
something  that  may  mean  much  to  our  nation  and  its  com- 
merce for  generations  to  come.  It  is,  therefore,  very  im- 
portant that  American  business  men  should  study  the 
regulations  of  the  Federal  Reserve  Board,  not  so  much 
from  the  academic  point  of  view  as  from  the  standpoint 
from  which  each  business  man  can  best  judge  the  extent 
to  which  they  may  be  adapted  to  and  adopted  in  his  busi- 
ness. This  was  the  evident  intention  of  the  framers  of 
the  law,  and  the  interpretation  thereof  is  to  be  found  in 
the  simple  and  practical  definition  and  explanation  of 
acceptances  by  the  Federal  Reserve  Board. 

Reestablishment  of  the  Trade  Acceptance  under  the 
Federal  Reserve  Act. — Although  circulars  of  the  Federal 
Reserve  Board  of  November  16,  1914,  and  April  2,  1915, 
outlined  special  privileges  and  discount  rates  to  be  enjoyed 
by  acceptances,  the  "trade  acceptance"  as  such,  with  its 
full  scope  and  power  defined,  was  first  launched  fully  and 
an  unlimited  field  for  rediscount  of  domestic  acceptances  re- 
created by  the  Federal  Reserve  Board,  as  outlined  in  their 
circular,  dated  July  15,  1915.  This  lucid  and  official  rec- 
ommendation should  go  a  long  way  toward  commending 
the  trade  acceptance  to  the  study  and  use  of  the  bankers, 
manufacturers,  and  merchants  of  the  United  States. 

Scope  and  Form  Outlined  by  Federal  Reserve  Board 
Ruling. — Here  is  quoted  in  full  the  ruling  of  the  Federal 
Reserve  Board  which  served  to  reintroduce  the  acceptance 
into  the  American  business  world : 


ACCEPTANCES  IN  THE  UNITED  STATES   41 

Federal   Reserve   Board, 
Washington,  July  15,   1915. 

Bills  of  exchange  drawn  against  sales  of  goods  and  accepted  by 
purchasers^  hereinafter  referred  to  as  trade  acceptances. 

By  Regulation  B,  Series  of  1915,  the  Board  has  prescribed 
the  conditions  upon  which  commercial  paper  may  be  redis- 
counted  with  Federal  Reserve  Banks,  and,  by  Regulation  J, 
Series  of  1915,  rules  have  been  promulgated  covering  operations 
in  bankers'  acceptances.  The  attached  regulation  is  to  deal  with 
''trade  acceptances"  as  a  distinct  class  of  commercial  paper,  for 
which  the  Board  is  ready  to  approve  the  establishment  of  a 
discount  rate  somewhat  lower  than  that  applicable  to  other 
commercial  paper. 

These  trade  acceptances  are  more  particularly  defined  in  the 
appended  Regulation  P,  Series  of  1915,  and  in  promulgating  it 
the  Board  expresses  the  belief  that  it  will  considex'ably  enlarge 
the  scope  of  service  of  Federal  Reserve  Banks,  and,  incidentally, 
assist  in  developing  a  class  of  double-name  paper  which  has 
shown  itself  in  so  many  countries  a  desirable  form  of  invest- 
ment and  an  imjDortant  factor  in  modern  commercial  banking 
systems.  H.  Parker  Willis,  Secretary.. 

Charles  S.  Hamlin,  Governor. 


Regulation  P.  Series  of  1915. 

Washington,  July  15,  1915. 

Bills  of  exchange  drawn  against  sales  of  goods  and  accepted  by 
purchasers,  hereinafter  referred  to  as  ''trade  acceptances." 


Definition 

In  this  regulation  the  term  "trade  acceptance"  is  defined  as 
a  bill  of  exchange  of  the  character  hereinafter  described,  drawn 
to  order,  having  a  definite  maturity  and  payable  in  dollars  in 
the  United  States,  the  obligation  to  pay  which  has  been  accepted 
by  an  acknowledgment,  written  or  stamped,  and  signed  across 
the  face  of  the  instrument  by  the  company,  firm  or  corporation, 
or  person  upon  whom  it  is  drawn,  such  agreement  to  be  to  the 


42  ACCEPTANCES 

effect  that  the  acceptor  will  pay  at  maturity,  according  to  its 
tenor,  such  draft  or  bill  without  qualifying  conditions. 


II 

Character  of  Paper  Eligible 

A  trade  acceptance,  to  be  eligible  for  rediscount,  under  section 
13,  with  a  Federal  Reserve  Bank  at  the  rate  to  be  established 
for  trade  acceptances — 

(a)  Must  be  endorsed  by  a  member  bank,   accompanied  by 

waiver  of  demand  notice  and  protest ; 

(b)  Must  have  a  maturity  at  the  time  of*diseount  of  not  more 

than  90  days; 

(c)  Must  be  accepted  by  the  purchaser  of  goods  sold  to  him 

by  the  drawer  of  the  bill,  and  the  bill  must  have  been 
drawn  against  indebtedness  expressly  incurred  by  the 
acceptor  in  the  purchase  of  such  goods. 

Ill 

Method  of  Certifying  Eligibility 

A  trade  acceptance  must  bear  on  its  face,  or  be  accompanied 
by,  evidence  in  form  satisfactory  to  the  Federal  Reserve  Bank, 
that  it  is  drawn  by  the  seller  of  the  goods  on  the  purchaser  of 
such  goods.  Such  evidence  may  consist  of  a  certificate  on  or 
accompanying  the  acceptance,  to  the  following  effect:  "The 
obligation  of  the  acceptor  of  this  bill  arises  out  of  the  i)urchase 
of  goods  from  the  drawer."  Such  certificate  may  be  accepted 
by  the  Federal  Reserve  Bank  as  sufficient  evidence;  provided, 
however,  that  the  Federal  Reserve  Bank,  in  its  discretion,  may 
inquire  into  the  exact  nature  of  the  transaction  underlying  the 
acceptance. 

H.  Parker  Willis,  Secretary. 

Charles  S.  Hamlin,  Governor. 

Attractiveness  to  the  Banker  and  Business  Man. — The 
rulings  practically  make  trade  acceptances  eligible  to-  an  un- 
limited amount  for  rediscount  for  member  banks  by  Fed- 


ACCEPTANCES  IN  THE  UNITED  STATES      43 

eral  Reserve  Banks:  again  showing  the  high  esteem  in 
which  they  are  held  under  the  law.  The  whole  ruling  is 
evidently  intended  to  foster  the  generous  use  of  the  ac- 
ceptance, and  is  an  encouragement  to  all  member  banks 
and  their  depositors  to  use  them  freely. 

There  seems  to  have  been  no  hesitation  or  equivocation 
by  the  Federal  Reserve  Board  in  doing  its  full  share  in 
defining  the  law  and  methods  of  proper  procedure — in- 
deed, it  has  been  most  generous  and  assiduous  in  the  at- 
tention given  to  the  subject. 

Although  the  bankers  of  the  country  cannot  create  trade 
acceptances,  they  can  do  much  to  further  the  purpose  of 
the  Government  by  encouraging  their  proper  use  by  their 
depositors,  the  manufacturers  and  wholesale  and  retail  mer- 
chants of  the  country,  upon  whose  initiative  or  inaction 
rests  the  ultimate  outcome  of  this  important  movement  to 
liquefy  American  business  credits. 


CHAPTER  V 

HOW  TO   INSTALL  TRADE   ACCEPTANCES   IN   A   WHOLESALE   BUSINESS 

The  first  step  taken  by  a  firm,  preliminary  to  introducing 
trade  acceptances  to  its  customers,  is  to  determine  upon 
what  terms  it  will  issue  them.  The  method  of  putting  out 
will  largely  depend  upon  this  decision. 

Every  firm  must  consider  its  own  terms,  relations  with 
customers,  and  general  conditions,  but,  as  pointed  out  in 
other  chapters,  this  consideration  should  not  be  in  any 
sense  one-sided ;  in  fact,  the  firm  should  put  the  customer 's 
interest  and  attitude  of  mind  first,  and  its  own  second.  In 
doing  so  it  may  be  found  that  the  "last  shall  be  first" 
indeed,  and  the  greatest  benefit  may  eventually  accrue 
to  the  Teller  through  generous  treatment  of  the  buyer. 

It  has  been  found  necessary  to  analyze  the  customer's 
attitude  of  mind  toward  the  buyer's  house  and  goods  and 
decide  whether  he  is  obliged  to  have  its  goods.  Also, 
whether  he  must  have  all  he  buys  from  it  now  on  open 
account.  This  same  angle  in  regard  to  new  customers 
whom  the  firm  will  solicit  must  also  be  carefully  considered. 

In  this  analysis,  the  fact  should  not  be  overlooked  that 
the  signing  of  the  first  acceptance  by  a  buyer  is  a  radical 
departure  for  him,  and  a  step  which  he  will  probably  not 
take  unless  he  feels  that  he  cannot  well  afford  to  refuse  in 
order  to  either  get  the  goods,  keep  the  good-will  of  the 
house,  or  obtain  better  terms,  if  a  concession  is  offered  him. 
His  attitude  and  action  in  the  matter  will  naturally  influ- 
ence the  procedure. 

44 


WHOLESALE  BUSINESS  45 

Will  the  Customer  Be  Given  the  Vote? — If  the  seller 
decides  on  a  plan  which  he  surely  feels  will  induce  buyers 
to  sign  a  trade  acceptance,  the  next  decision  is  whether  he 
should  insist  on  the  trade-acceptance  terms,  or  whether  it 
will  be  more  politic  to  use  the  democratic  method  of  giving 
customers  the  "vote,"  yet  so  placing  before  them  the 
benefits  of  the  trade  acceptance  that  the  majority  will 
vote  to  accept  it. 

By  giving  the  customer  the  choice  and  making  it  attrac- 
tive, he  will  probably  be  more  apt  to  "accept,"  than  if 
he  feels  the  seller  desires  to  force  on  him  new  and  possibly 
unattractive  terms.  If  a  buyer  is  able  to  do  without  the 
seller's  goods,  then  it  is  not  advantageous  and,  sometimes, 
impossible  to  insist  on  trade  acceptance  terms.  However, 
proper  letters  and  explanations  by  salesmen  may  enable 
the  seller  to  collect  by  trade  acceptances,  even  though  the 
buyer  is' at  first  averse  to  them  and  the  seller's  competitors 
do  not  use  them. 

If  it  appears  that  the  buyer's  acceptance  is  doubtful,  in 
spite  of  all  persuasion  and  persistence  brought  to  bear, 
some  sellers  carefully  consider  what  is  the  least  conces- 
sion that  can  be  made  to  get  the  hig  majority  of  customers 
to  sign  trade  acceptances  and  he  glad  to  do  so.  Chapter 
XII  analyzes  this  phase  of  the  problem  in  detail. 

Each  factor  should  be  weighed  as  carefully  by  a  seller 
as  if  he  were  putting  out  a  new  piece  of  goods,  in  order 
to  ascertain  if  his  sales  department  or  salesmen  are  penal- 
ized by  the  loss  of  time  or  orders  in  selling  on  trade- 
acceptance  terms,  with  no  choice  to  buyer.  If  there  is 
such  a  result,  it  has  occasionally  been  found  necessary  to 
give,  temporarily  at  least,  inducement  sufficient  to  sell 
the  trade  acceptance  itself,  just  as  extra  dating  or  a  shade 
lower  price  is  sometimes  given  to  introduce  a  new  line. 

Special  terms  and  explanatory  circulars  have  for  their 
purpose  the  quicker  adoption  of  the  trade  acceptance,  and 


46  ACCEPTANCES 

may  only  be  necessary  until  the  system  is  well  established. 
In  countries  where  acceptances  are  well  knoAvn  and  estab- 
lished, explanations  and  inducements  would  not  be  neces- 
sary ;  in  fact,  in  such  lands  the  seller  demands  acceptances 
and  in  most  cases  the  buyer  expects  to  give  them. 

Differing  Terms  for  Various  Trades  or  Localities. — 
Since  terms  differ  in  almost  every  trade  or  locality,  the 
seller  or  an  expert  should  analyze  and  adapt  them  accord- 
ing to  the  principles  and  suggestions  outlined  in  this 
book,  until  the  trade-acceptance  terms  best  suited  to  his 
individual  case  have  been  arrived  at.  It  is  especially 
important  to  start  with  the  terms  as  near  to  one  hundred 
per  cent  as  possible,  because  it  has  been  found  that  those 
who  started  with  "half  way,"  or  compromise,  terms  had 
to  change  them  to  get  results. 

After  deciding  whether  he  will  put  out  trade  accept- 
ances on  the  same  time  as  that  given  on  open  account,  or 
whether  he  will  offer  an  inducement  to  accept,  the  seller 
will  be  able  to  adjust  accordingly  the  details  of  handling 
the  acceptances. 

Plans  of  Issuing  and  Explaining  Trade  Acceptances. — 
If  all  credit  settlements  are  to  be  by  trade  acceptance,  and 
if  the  terms  offered  on  trade  acceptances  are  the  same  as 
on  open  account,  it  will  only  be  necessary  to  make  out  a 
trade  acceptance  for  the  face  value  of  invoice,  or  statement, 
and  forward  it  with  the  invoice  to  the  buyer.  Since  the 
trade  acceptance  is  a  credit  instrument,  it  in  no  way  affects 
cash  terms. 

It  has  been  found  that  the  greater  percentage  of  trade 
acceptances  are  accepted  by  customers  if,  when  the  first 
acceptance  is  sent  to  them,  the  matter  is  carefully  and 
graphically  explained  and  they  are  shown  the  advantages 
for  them  in  their  acceptance  of  it. 

There  are  several  ways  to  introduce  the  trade  accept- 
ance and  firms  in  various  lines  of  business  use  different 


WHOLESALE  BUSINESS  47 

methods.  Some  firms  issue  either  explanatory  memoranda 
attached  to  the  acceptances,  letters,  or  booklets,  and  send 
them  to  the  customers.  Explanatory  booklets  have  been 
issued  by  the  Federal  Reserve  Banks,  bankers,  the  Accept- 
ance Councils,  and  by  associations  and  firms  aiming  to 
enlighten  both  buyer  and  seller  on  the  subject  and  pro- 
cedure of  trade  acceptances.  Care  should  be  taken  not  to 
use  booklets  which  appeal  to  the  banker  or  seller  rather 
than  the  customer,  or  which  endeavor  to  cover  all  phases 
and  are  of  a  rather  negative  value  to  the  general  trade. 

What  is  needed  in  a  selling  campaign  are  data  interest- 
ing to  the  person  appealed  to,  and  other  phases  need  not  be 
covered.  Propaganda  or  explanation  (similar  to  that  in 
the  chapters  in  Part  III  of  this  volume)  has  been  found 
to  appeal  directly  to  the  buyer  who  accepts,  rather  than 
to  constitute  an  academic  discussion  of  the  merits  of  the 
trade-acceptance  plan. 

Speak  to  the  Customer  in  His  Own  Language. — In  mak- 
ing trade-acceptance  plans,  it  has  been  found  necessary  to 
consider  the  kind  of  financial  intelligence  possessed  by  the 
customers  whom  it  is  desired  to  interest.  It  is  not  often 
found  feasible  to  try  to  sell  the  trade  acceptance  by  an 
academic  treatise  which,  although  entirely  clear  and  con- 
vincing to  its  maker,  may  go  entirely  over  the  head  of 
the  one  (the  buyer)  who  must  be  convinced  and  made  to 
understand  before  he  will  sign  the  acceptance. 

By  investigation  it  is  found  that  one  reason  why  a  credit 
department  sometimes  has  misunderstandings  with  the 
merchant  is  that  it  does  not  speak  the  same  language  and 
it  takes  a  "traveler"  to  smooth  out  the  "sore  spots."  It 
has  been  found  advantageous  to  submit  the  firm's  trade- 
acceptance  literature  to  the  sales  manager  or  salesmen,  as 
well  as  the  advertising  manager,  to  obtain  their  criticism 
before  "trying  it  on  the  dog." 

Does  the  dog  know?     This  question  of  the  customer's 


48  ACCEPTANCES 

understanding  of  what  the  seller  is  driving  at  reminds  one 
of  the  well-worn  story  of  the  tramp  and  the  professor  and 
his  dog.  The  professor  asked:  "Why  do  you  fear  the 
dog?  You  know  that  a  barking  dog- does  not  bite,"  and 
the  tramp  replied,  "Yes,  I  know  it  and  you  know  it,  but 
does  the  dog  know  it?"  The  moral  is:  it  is  well  to  be 
sure  that  the  buyer  knows  what  a  trade  acceptance  is,  that 
it  is  good,  and  that  it  will  not  "bite,"  so  that  he  will  not 
fear  it  and,  therefore,  not  shun  it. 

The  letter,  request,  or  explanation  attached  to  the  ac- 
ceptance form  should  play  up  special  reasons  why  custom- 
ers should  sign  and  return  the  acceptance. 

A  half-hearted  selling  campaign  for  any  kind  of  mer- 
chandise has  never  been  successful,  nor  has  a  half-hearted 
selling  campaign  for  trade  acceptances  ever  resulted  in 
having  all  possible  acceptances  accepted  and  returned: 
therefore,  the  "propaganda"  must  be  intensive  and  per- 
suasive. 

Methods  Used  by  Various  Firms. — A  well-established 
manufacturer,  in  putting  out  the  trade  acceptance,  made 
the  length  of  time  on  his  trade  acceptance  optional  with 
his  bookkeeping  department,  letting  it  range  upward  from 
a  few  days,  in  which  case  the  trade  acceptance  became  due 
five  days  or  more  after  the  net  terms  of  the  bill.  Experi- 
ence proved  that  this  method  was  not  positive  enough  to 
draw  a  large  number  of  acceptances. 

A  credit  manager  of  a  prominent  jobbing  firm  states, 
"I  so  word  the  explanatory  slip  attached  to  the  acceptance 
that  it  will  bring  one  objection  from  the  buyer  at  once,  and 
I  can  explain  away  such  objection." 

Another  credit  manager  of  a  manufacturing  concern 
with  world-\Adde  connections  said :  "  I  put  the  word  '  draft ' 
three  times  in  my  explanatory  memo,  attached  to  trade 
acceptance,  for  although  the  word  'draft'  may  not  be  liked, 
I  believed  the  buyer  has  been  entirely  too  much  catered 


WHOLESALE  BUSINESS  49 

to."  The  term  "trade  acceptance"  was  substituted  in 
their  later  forms. 

Results  may  be  obtained,  even  by  such  negative  methods, 
if  a  house  is  strong  enough,  but  each  firm  should  judge  its 
own  position  with  its  customers  and  act  accordingly. 
Many  big  and  little  firms  state  that  they  prefer  not  to 
take  the  chance  of  prejudicing  their  customers  against  the 
new  credit  plan,  especially  if  some  are  only  occasional  cus- 
tomers, and  so  cannot  be  educated  by  a  long  series  of  sales 
letters,  salesmen's  calls,  etc.  Such  firms  use  attractive 
explanations  or  even  inducements. 

The  details  as  to  forms,  letters  to  customers  and  salesmen, 
instructions  to  the  accounting,  sales,  and  publicity  depart- 
ments, etc.,  should  be  carefully  prepared,  considered,  and 
then  reconsidered  from  every  angle. 

In  Chapter  IX  of  this  book,  sample  forms,  letters  and 
instructions  are  fully  given,  with  explanations  of  them 
which  can  be  modified  to  suit  the  need  of  each  individual 
trade  or  firm.  As  already  explained,  the  personal  touch  in 
all  these  details  is  very  advantageous,  yet  great  care  must 
be  exercised  not  to  depart  from  the  proven  and  legal  forms 
and  methods,  similar  to  those  outlined  in  this  volume. 
For  it  should  be  realized  that  each  acceptance  is  a  financial 
instrument  which  must  pass  through  the  banks  and  may, 
in  its  handling,  serve  as  the  basis  of  the  currency  of  our 
country. 

Every  Department  Has  Its  Part. — In  addition  to  giving 
letters  of  instructions  to  the  salesmen  employed  when  first 
putting  the  plan  into  effect  or  to  others  who  are  later 
engaged,  it  is  very  desirable  to  have  the  salesmen  go  over 
the  trade-acceptance  terms,  plans,  and  procedure  thor- 
oughly with  the  financial  as  well  as  the  sales  department, 
either  singly  or  in  meetings,  so  as  to  have  them  thoroughly 
"sold"  on  the  trade-acceptance  terms  of  the  firm  and 
anxious  to  have  their  customers  ' '  take  advantage ' '  of  them. 


50  ACCEPTANCES 

As  detailed  in  Chapter  VIII,  on  correct  accounting 
methods,  conditions  will  dictate  whether  trade  acceptances 
should  be  made  out  to  cover  each  invoice  and  sent  there- 
with, or  whether  they  should  be  made  and  sent  out  period- 
ically on  the  first  of  the  month  with  the  statements  for 
shipments  of  the  previous  month.  The  bookkeeping  de- 
partment should  study  the  procedure  from  an  accounting 
standpoint,  so  that  it  may  manage  the  books  to  handle 
acceptances  without  error  or  hitch. 

Furthermore,  it  is  equally  necessary  that  the  treasury 
department  understand  the  financial  and  banking  aspects 
of  acceptances,  and  the  most  approved  procedure  for  the 
advantageous  and  economical  handling  of  acceptances  after 
they  are  received.  The  details  as  to  correct  methods  of 
collection  or  discount,  as  outlined  in  subsequent  chapters 
on  these  subjects,  should  be  thoroughly  familiar  to  this 
department. 

All  details  in  connection  with  this  new  credit  plan  should 
be  properly  arranged  to  function  with  the  greatest  success, 
for  a  half-baked  or  makeshift  plan  will  not  produce  the 
best  results. 


CHAPTER  VI 

SIMPLE  TRADE-ACCEPTANCE  METHODS,  TERMS  AND  FORMS 

Information  as  to  Terms. — Since  an  understanding  of 
terms  is  as  important  as  an  understanding  of  the  prices  of 
the  goods  themselves,  it  has  been  found  expedient  to  have 
all  new  terms  written  out  completely  for  sales  and  credit 
manuals,  and  copies  sent  to  all  salesmen  and  men  handling 
such  terms  in  any  way.  When  trade-acceptance  terms  are 
the  same  as  the  open  terms,  it  will  only  be  necessary  to 
state  this  and  also  that  a  trade  acceptance  will  accompany 
each  invoice  or  statement  of  amount  decided  upon.  If  trade 
acceptances  are  made  out  for  the  same  length  of  time  that  is 
given  on  open  accounts,  but  subject  to  a  special  discount  for 
signing,  this  can  be  simply  stated.  If  extra  time,  or  time 
and  discount,  is  given  for  signing  a  trade  acceptance,  this 
also  should  be  stated  as  simply  as  possible,  but  in  full,  so 
that  no  error  or  misunderstanding  may  occur. 

It  is  found  desirable  to  have  general  terms  written  out 
in  full,  and,  when  they  are  diverse  in  various  lines,  to  cover 
the  lines  separately.  From  these  the  trade-acceptance 
terms  can  be  worked  out  and  added  to  cash  and  open  terms, 
if  they  vary  therefrom.  General  terms  vary,  of  course,  but 
they  may  be  summarized  in  a  form  similar  to  the  following, 
covering  all  possible  phases  of  acceptance  terms,  including 
extra  time,  discount,  freight  allowance,  etc. ;  these  illustrate 
the  method  adopted  by  one  group  of  manufacturers ;  they 
are  in  no  ivay  qv/Hed  as  model  terms,  for  iLse  hy  others: 

Regular  2%  for  cash  10th  of  month  following  date  of  ship- 
ment. 

51 


52  ACCEPTANCES 

y-2,  of  1%  for  trade  acceptance  due  60  days  from  first  of 
month  after  date  of  shipment. 

Net  60  days  from  date  of  shipment. 

Datings  only  on  bona  fide  stock  orders  shipped  in  January, 
February,  or  March — dated  April  1st. 

In  June,  July,  or  August — dated  September  1st. 

Trade  acceptance  to  be  signed  by  buyer  when  order  is  filled 
or  shipped  on  all  dated  shipments.  Where  it  is  desired  to  take 
cash  discount  on  dated  bills,  if  check  to  cover  invoice,  less  cash 
discount,  is  sent  within  10  days  of  dating  date,  seller  will  return 
buyer's  signed  acceptance  or  seller's  check  to  cover. 

Dating  Terms  2%  cash  10  days  after  dating  date. 

14  of  1%  trade  acceptance  due  60  days  after  dating  date. 

Net  60  days  after  dating  date. 

Freight. — Freight  is  allowed  to  buyer  if  bill  is  paid  when 
due;  that  is,  discounted  for  cash,  paid  by  trade  acceptance, 
or  on  net  open  account  terms. 

Terms  as  Stated  in  Detail  by  an  Association  of  Manu- 
facturers.— As  stated,  instructions  in  terms  should  vary 
as  the  terms  vary  from  those  given  in  the  foregoing  illus- 
tration. It  is  desirable  that  the  financial  department,  in- 
cluding the  credit  manager  and  those  who  will  handle  cor- 
respondence on  this  subject,  should  thoroughly  understand 
the  advantages  and  terms  of  the  firm's  trade  acceptances. 

In  addition  to  the  foregoing  explanation  of  terms  it  is 
advisable  to  send  a  circular  letter  of  instruction  to  various 
interested  departments  to  guide  them  in  their  proper  pro- 
cedure. 

The  following  is  taken  from  a  form  adopted  by  a  manu- 
facturers' association,  covering  quite  diversified  terms,  a 
copy  of  which  was  sent  to  every  member  of  the  organiza- 
tion whom  it  was  desirable  to  post.  After  stating  their 
terms  as  in  foregoing  circular,  they  said: 

Terms  on  trade  acceptance  will  be  60  days  from  first  of  month 
following  date  of  invoice  and  Y2  of  1%  for  signing  and  re- 
turning trade  acceptance  within  10  days  of  shipment. 

If  trade  acceptance  is  not  signed  and  returned  in  10  days,  the 


METHODS,  TERMS  AND  FORMS      53 

account  will  be  treated  as  a  regular  open  account  and  handled 
accordingly. 

It  will  be  understood  that  the  regular  cash  discount  terms  of 
the  bill  will  apply  if  a  customer  wishes  to  discount  the  account 
(by  the  10th  of  the  month  following)  and  he  will  take  off  his 
regular  2%  and  return  unsigned,  or  disregard,  trade  acceptance 
attached  to  the  invoice  or  statement. 

Where  there  has  been  a  special  extension  of  time  or  datings, 
the  same  conditions  will  prevail  on  open  accounts  and  those 
closed  by  trade  acceptance;  that  is,  both  will  be  due  60  days 
after  date  of  dating  and  1/2  of  1%  will  be  deducted  from  trade 
acceptance  for  signing  and  returning  it  at  time  of  shipment. 

Freight  allowance  will  be  made  for  payment  as  per  terms, 
viz:  where  paid  freight  receipt  is  forwarded  to  us  it  may  be 
deducted  when  account  is  paid  for  cash,  by  10th  of  month  fol- 
lowing shipment,  or  when  remitting  within  60  days  from  date 
of  shipment. 

Where  trade  acceptance  is  signed,  the  buyer  should  send  the 
paid  freight  receipt  to  us  and  we  will  send  him  our  check  to 
cover  same  in  full. 

Our  special  terms  on  trade  acceptances  will  be  exploited  as 
a  special  inducement  to  customers,  and,  where  possible,  will  be 
used  to  benefit  the  sales  department,  through  coiTespondence,  or 
through  the  salesmen,  as  a  special  offering  of  benefit  to  the  cus- 
tomers, and  they  should  be  viewed  and  handled  from  this  angle. 

It  is  not  necessary  for  the  customer  to  accept  the  trade  ac- 
ceptance. It  is  entirely  optional,  but  it  will  be  to  his  benefit, 
and  will  also  be  to  our  benefit  and,  therefore,  it  is  our  policy  to 
educate  the  salesman  and  the  customer  as  to  its  benefits,  and 
get  as  many  customers  to  accept  same  as  possible,  which  will  be 
best  accomplished  by  persistent  efforts  by  all   departraents. 

It  will  be  evident  also  where  a  customer  might  order  less  than 
$25.00  worth  of  goods,  that,  in  some  cases,  by  showing  him  the 
benefit  of  the  special  terms  for  ordering  $25.00  worth  or  more 
(to  come  within. the  limit  of  the  ti-ade  acceptance),  it  will  result 
in  increasing  the  size  of  the  order. 

It  is  legal  to  make  a  trade  acceptance  for  as  long  a  period 
as  desired,  but  this  shall  be  done  only  in  cases  where  it  is  de- 
sirable to  get  the  order  in  larger  quantity  by  longer  terms,  or 
for  some  other  sufficient  reason,  and  such  terms  must  first  be 
submitted  to  and  approved  by  the  company. 

We  have  decided  to  give  an  extra  benefit  to  our  customers 


54 


ACCEPTANCES 


|g8 
5, sis 


jii 

I  i 


TO  BE  PILLED  IN  BY  ACCEPTOR  (BUVEID 


$  qq.oo 


llar«h-l,19     .«FTEB  DATE.    §  |j 

Blnaty  Bins  and 


Figure  9.    Trade  Acceptance  Form  Filled  in  for  Acceptance 
BY  Buyer 

to  encourage  the  general  use  of  this  admirable  method  of  set- 
tlement of  accounts.  However,  we  offer  the  special  terms  for 
trade  acceptance  subject  to  withdrawal  or  modification  by  the 
company  should  conditions  change  or  seem  to  warrant  such  an 
action.  We  hope  you  will  use  every  effort  to  foi-ward  trade  ac- 
ceptances as  a  company  policy. 

(Signed)  Company, 


All  forms  should  be  carefully  modified  as  to  best  suit  the 
terms  and  policies  of  the  seller. 

Point  on  Printing  Trade-Acceptance  Forms. — In  print- 
ing acceptance  forms,  the  firm 's  name  should  be  omitted  on 
a  certain  number  of  acceptances  which  may  be  used  for 
the  firm's  own  purchases,  when  it  is  desirable  and  sellers 


METHODS,  TERMS  AND  FORMS 


55 


Figure  10. 


Keverse  of  Form  Shown  in  Figure  9  Filled  in  for 
Acceptor's  Eecord 


agree  to  it.  Since  a  firm  usually  sends  out  a  large 
number  of  acceptances,  a  percentage  of  which  are  not  re- 
turned, it  is  well  to  consider  whether  "safety"  paper  is 
necessary  or  desirable  in  the  printing  of  acceptances.  It 
is  certainly  proper  and  impressive.  The  need  for  safety 
paper  or  defaces  that  exists  in  the  case  of  checks,  to  pre- 
vent alteration,  is  not  applicable  in  the  usual  handling  of 
the  acceptance. 

For  instance,  when  an  acceptance  is  sent  by  the  drawer 
to  the  acceptor,  the  amount  is  checked  up  by  the  buyer 
before  accepting  and  he  then  returns  it  directly  to  the 
drawer.  The  drawer,  after  crediting  it  to  the  acceptor, 
usually  turns  it  over  for  discount  or  collection  directly  to 
his  bank,  which,  in  turn,  sends  it  through  banking  channels 


56  ACCEPTANCES 

to  the  place  where  it  is  to  be  paid  by  the  acceptor  (his 
bank  or  place  of  business). 

During  this  routine  the  only  persons  who  have  an  oppor- 
tunity to  change  the  acceptance,  unless  lost  in  transit,  are 
the  buyer,  the  seller,  or  their  banks.  This  contingency,  in 
the  usual  course  of  business,  need  hardly  be  considered  as 
probable.  If  the  buyer  raised  the  amount  of  the  accept- 
ance, he  would  have  to  pay  it;  if  he  lowered  it,  it  would 
not  cover  the  charge.  If  any  danger  is  present,  it  exists 
for  the  buyer,  through  the  possibility  of  the  seller's  raising 
the  amount  of  the  acceptance  after  he  receives  it  back  from 
the  buyer.  If  the  buyer  should  fear  such  an  outcome,  he 
could  indorse  on  the  acceptance,  in  some  safety  form,  the 
amount  he  was  accepting  for.  It  will  be  understood  that 
a  trade  acceptance  is  not  negotiable  until  received  back 
by  the  drawer  and  indorsed  by  him. 

The  possible  chance  of  loss  to  the  maker  (seller)  through 
change,  at  least  under  present  conditions,  is  so  negligible 
as  hardly  to  warrant  the  extra  expense  of  printing  the 
acceptances  on  safety  paper,  when  they  are  sent  out  in 
large  quantities. 

However,  as  in  Europe,  when  acceptances  are  handled 
and  sold  through  the  open  discount  market,  and  are  likely 
to  pass  through  many  hands,  it  may  be  desirable  to  use 
conservative  methods  to  obviate  any  chances  of  alteration 
and  the  consequent  responsibility  upon  those  whose  names 
appear  on  the  acceptance. 

Standard  Forms. — Although  individual  taste  may  pre- 
vail in  the  set-up,  or  typography,  of  acceptance  forms,  it 
will  be  best  not  to  depart  radically  from  standard  forms, 
such  as  reproduced  in  Chapter  I,  or  other  forms  that  have 
been  carefully  tested.  The  legal  requirements,  covering 
the  negotiable  instrument  laws  of  all  states,  as  well  as 
other  banking  laws  and  usages,  have  been  carefully  com- 
plied with  in  the  acceptance  forms  in  Chapter  I,  and  these 


METHODS,  TERMS  AND  FORMS      57 

formg  have  been  specifically  approved  by  the  Federal 
Reserve  Board. 

As  suggested,  when  it  is  desired  to  pay  bills  with  a  trade 
acceptance,  a  form  can  be  filled  out  and  forwarded  to  the 
seller,  as  in  Figures  9  and  10.  If  the  seller  elects  to  use  the 
acceptance,  it  will  pay  the  bill.  If  he  does  not  care  to 
use  it,  he  will  return  it  to  the  maker  and  advise  him  to 
remit  on  regular  terms. 

Trade-Acceptance  Register. — The  trade-acceptance  regis- 
ter may  be  printed  on  any  size  or  quality  of  paper  most 
convenient  to  the  firm's  use.  Since  it  is  usually  kept  as  a 
memorandum  account,  it  may  be  printed  on  regulation-size 
punched  sheets  and  kept  in  regular  books  or  separate  bind- 
er. Sheets  for  the  seller's  record  and  the  buyer's  record  are 
the  same. 


CHAPTER  VII 

SATISFACTORY    METHODS    OF    RECORDING    TRADE    ACCEPTANCES    AND 
CHECKING  UP  RESULTS 

Trade-Acceptance  Records. — The  seller,  when  sending 
out  trade  acceptances  to  his  customers,  may  make  a  more 
or  less  complete  record,  as  his  bookkeeping  department 
chooses.  It  is  not  essential  to  keep  a  record  of  the  accept- 
ances sent  out,  because  they  are  of  no  value  unless  they 
are  accepted  and  returned.  Therefore,  when  it  is  pre- 
ferred, no  permanent  record  need  be  kept,  until  the  accept- 
ance is  returned,  legally  "accepted"  by  the  buyer.  How- 
ever, those  using  a  duplicate  acceptance  form,  similar  to 
that  illustrated  in  Chapter  II,  can  employ  it  without  mod- 
ification, to  furnish  either  one  copy  or  as  many  copies 
as  the  user  may  need  for  his  records. 

It  will  be  noted  that  by  the  seller's  merely  folding  the 
acceptance  (Figure  No.  3)  and  placing  a  carbon  therein, 
before  filling  in,  a  copy  is  made  for  the  buyer,  who  can 
retain  it  and  have  all  the  details  of  the  transaction,  except 
the  place  where  payable,  which  latter  information  he  can 
note  thereon  when  he  accepts  the  original.  If  another 
copy  of  the  same  acceptance  blank  is  placed  Back  of  the 
original,  one  or  two  more  full  records  of  the  acceptance 
can  be  obtained  by  placing  one  or  two  carbons  therein. 
As  many  copies  as  desired  can  be  made  by  the  seller  for 
use  as  records. 

Later  in  this  chapter  a  handy  form  of  trade-acceptance 
record  for  both  buyer  and  seller  is  shown  in  Figures  11 
and  12.    The  size  of  the  original  is  S^/o  inches  by  lltinches. 

58 


RECORDING  TRADE  ACCEPTANCES  59 

Since  a  considerable  percentage  of  acceptances  sent  out 
are  not  returned,  a  simple  form  of  handling  is  usually 
desirable. 

Complete  Record  of  All  "Accepted"  Items. — When  ac- 
ceptances are  returned  "accepted,"  an  entry  may  be  made 
on  a  "register"  as  shown  in  Figure  11  of  this  chapter. 
As  this  register  is  in  the  nature  of  a  memorandum,  entry 
may  be  made  from  the  total  of  each  page  (or  of  each 
trade  acceptance)  in  the  books  under  "Acceptances  Re- 
ceivable," which  account  is  handled  in  practically  the 
same  manner  as  "Notes  Receivable."  Other  necessary 
postings  are  obvious. 

It  has  been  found  that  when  trade  acceptances  go  to 
those  who  are  not  familiar  with  the  most  approved  method 
of  handling  them,  and  because  trade  acceptances  are  not 
entered  in  the  bank  records  as  checks  are,  such  customers 
sometimes  overlook  making  arrangements  for  funds  to  pay 
the  acceptance  when  it  is  due,  or  presented  for  collection 
at  their  bank,  or  at  their  place  of  business.  It  has  been 
found  desirable  to  acquaint  such  customers  with  the  usual 
form  of  keeping  the  record  of  the  trade  acceptance,  so 
that  they  will  make  their  arrangements  accordingly  and 
be  less  liable  to  overlook  the  time  of  payment. 

Methods  of  Informing  Customers. — The  following  are 
two  diplomatic  ways  of  doing  this ;  in  fact,  it  is  preferable 
to  use  both. 

1.  Standard  Register. — "When  the  acceptor  returns  the 
first  acceptance,  the  register  form  may  be  used,  filling  in 
the  customer's  name  and  entering  the  details  of  the  ac- 
ceptance he  has  returned,  according  to  the  form  outlined 
for  the  buyer  in  Figure  11  of  this  chapter.  This  register 
is  sent  to  him,  with  the  recommendation  that  he  keep  his 
records  on  this  sheet,  or  in  a  similar  manner,  covering  all 
acceptances  he  accepts  from  any  source. 

2.  Standard  Carbon  Duplicate. — The  second  plan  is  fur- 


60  ACCEPTANCES 

nished  by  the  complete  carbon  copy  of  the  trade  acceptance 
on  the  reverse  side  of  Standard  Form,  Figure  No.  3,  in 
duplicate,  with  the  same  serial  number,  which  is  made  out 
at  same  time  as  the  original.  AVhen  he  accepts  the  original, 
the  acceptor  tears  off  and  retains  the  duplicate  for  his 
records,  and  he  can  then  make  any  records  therefrom  that 
he  prefers.  He  may  use  the  duplicate  as  a  voucher  copy 
or  check  stub,  or  he  may  put  it  in  the  tickler  for  handling 
at  due-date. 

By  making  another  carbon  copy  of  the  original,  as 
already  explained,  a  copy  for  seller's  files  is  had,  and,  if 
desired,  another  copy  can  be  made  for  the  tickler,  bearing 
the  same  serial  numbers  as  the  original. 

If  a  record  of  all  acceptances  sent  out  is  desired  by  the 
seller,  probably  the  most  satisfactory  plan  is  to  file  the 
third  copy  numerically,  as  it  can  be  easily  found  through 
the  record  in  the  accepted  register,  made  out  when  ac- 
ceptances are  returned.  It  will  also  be  noted  in  the  ledger, 
or  elsewhere,  that  a  trade  acceptance  has  been  received, 
when  entry  of  payment  of  the  account  by  trade  acceptance 
is  made. 

If  it  is  preferred,  this  third  copy  can  be  filed  alphabet- 
ically, by  the  customer's  name,  or  otherwise.  The  fourth 
copy  of  the  acceptance  can  serve  the  following  several 
purposes :  When  an  acceptance  is  being  sent  to  a  customer 
for  the  first  time,  or  to  a  customer  who  has  never  before 
accepted,  this  copy  can  be  checked  at  the  figure  1  (note 
figure  "1-12-20"  on  left-hand  end  of  the  Standard  Form, 
Figure  3),  which  denotes  it  as  a  first  series  and  the  follow- 
up  letters  are  sent  accordingly.  The  first  letter  contains 
the  invoice  and  acceptance;  the  second  letter  follows  12 
days  after  sending  the  acceptance,  and  the  third  letter  is 
forwarded  20  days  after  sending  the  acceptance.  When 
the  cash  discount  time  is  more  than  10  days,  the  second 
letter  should  be  sent  2  days  after  the  cash  discount  period 


RECORDINa  TRADE  ACCEPTANCES  61 

expires  and  the  third  letter  should  be  sent  8  days  there- 
after. 

If  it  is  desired  to  bring  up  these  dates  for  letters  by 
tickler,  the  fourth  copy  of  the  acceptance  can  be  put  in 
the  tickler  file  and,  when  letters  are  sent,  the  "1-12-20" 
figures  can  be  checked,  showing: 

V  1.  First  letter  sent.  V  12.  Second  letter  sent. 
V  20.     Third  letter  sent. 

If  the  trade  acceptance  is  accepted  and  returned,  the 
fourth  copy  can  be  filed  for  follow-up  (with  all  or  a  certain 
class  of  customers)  and  sent  as  a  notice  to  the  buyer  long 
enough  before  the  due  date  for  him  to  arrange  for  funds 
for  its  payment,  as  suggested  to  him  by  the  red  imprint 
on  the  duplicates. 

Although  when  properly  handled,  no  records  will  be 
needed  for  keeping  track  of  the  acceptance  for  the  seller 
or  the  buyer  or  for  notifying  the  latter  other  than  the 
original  and  carbon  copies  of  the  Standard  Form,  Figure  3, 
trade  acceptance,  yet,  as  noted,  more  satisfactory  and  com- 
plete auditing,  bookkeeping,  and  follow-up  records  can  be 
made  for  both  the  buyer  and  the  seller  by  the  use  of  some 
form  of  trade-acceptance  register. 

Standard  Form  Trade-Acceptance  Register. — The  book- 
keeping department  of  either  the  drawer  or  the  acceptor 
will  readily  follow  the  method  of  registering  trade  accept- 
ances as  received  back  by  the  drawer  (seller)  or  given  by 
the  acceptor  (buyer),  by  noting  the  Standard  Form  Regis- 
ter Sheet,  Figures  11  and  12,  which  is  interchangeable  for 
records  of  both  the  seller  and  the  buyer,  without  modifica- 
tion, unless  changes  in  details  are  desired  for  special  book- 
keeping entries. 

"When  a  seller  accepts  trade  acceptances  sent  him  by  those 
from  whom  he  buys,  it  is  obvious  that  he  will  also  use  the 
register  form  as  a  "buyer. ' '     The  seller  records  his  accept- 


62 


ACCEPTANCES 


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Figure  11.    Trade  Acceptance  Register  for  Drawer  (Seller) 


ances  received  back  accepted  as  shown  on  copy  of  register 
No.  1  for  ''seller"  (Figure  11),  filled  out  as  follows: 

Column 

1. — Date  of  entry  in  the  register 

2, — Enter  serial  number  of  trade  acceptance  received  back  ac- 
cepted 

3. — Name  and  address  of  acceptor  from  whom  received 

4. — Date  of  seller's  invoice  or  statement  covered  (trade  accept- 
ance bears  same  date) 

5. — Amount  of  trade  acceptance  in  dollars 

6. — Any  allowances  deducted  from  amount  of  invoice  (such  as 
freight) 

7. — Special  discount,  if  any,  given  for  signing  acceptance  or 
any  other  purpose.  (Total  of  columns  5,  6,  and  7  should 
equal  amount  of  invoice) 

8. — Where  posted  (when  posting  is  done) 

9. — Due  date  of  trade  acceptance  for  collection 
10  and  11. — Enter  date  that  drawer  puts  acceptance  in  bank 

for  collection,  or  for  discount,  as  the  case  may  be 
12. — Enter  date  that  acceptance  is  either  paid  or  returned   (in 

case  it  is  not  paid) 
13. — Enter  name  of  bank  where  seller  (drawer)   has  placed  ac- 
ceptance for  collection  or  discount 


RECORDING  TRADE  ACCEPTANCES 


63 


Trade  Acceptsmce  Register 

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Figure  12.     Trade  Acceptance  Eegister  for  Acceptor  (Buyer) 

Note:-^If  it  is  desired  to  keep  the  amount  deducted  or 
the  cost  of  discount  or  collection  in  connection  with  each 
acceptance  (as  noted  in  the  foreign  forms  of  register  shown 
in  Chapter  III),  a  special  column  may  be  arranged  to  suit 
these  needs ;  otherwise,  discounts  and  collection  charges  are 
handled  in  the  regular  accounts.  Posting  may  be  done  on 
each  transaction,  or  in  groups,  as  the  accounting  depart- 
ment may  prefer. 

Furnishing  Buyers  with  Registers. — The  sheet  contain- 
ing the  entry  for  the  first  acceptance  a  buyer  "accepts" 
may  be  prepared  and  sent  him  as  per  copy  "sent  to  buyer," 
Figure  12. 

On  the  register  sheet  sent  to  the  buyer  there  should  be 
entered  the  data  to  cover  the  first  acceptance  accepted  by 
him  (see  Figure  12)  as  follows: 


Column 

1. —  (Leave  blank  for  his  entry  date) 
2. — Serial  number  of  acceptance 
3. — Seller's  firm  name  and  address 

4. — Date  of  seller's  invoice  or  statement  covered  by  trade  ac- 
ceptance returned 
5. — Amount  of  seller's  trade  acceptance 


64  ACCEPTANCES 

6. — Amount  of  any  allowance  made  to  him 

7. — Special  discomit,  if  any,  given  for  signing  acceptance  or 
any  other  purpose 

8. —  (Leave  it  blank  for  him  to  fill  in  posting) 

9. — Date  trade  acceptance  will  be  presented  for  collection 
10.— Blank 
11.— Blank 
12.— Blank 
13. — Enter  name  of  buyer's  bank  where  acceptance  is  payable 

Varying  Forms  of  Registers  for  Acceptance  Records. — 

There  is  no  set  form  of  register  to  record  acceptances, 
because  the  style  used  is  one  entirely  according  to  the 
drawer's  or  acceptor's  desire.  Many  firms  have  used  their 
regular  record  form  for  bills  receivable  or  payable  for  this 
purpose,  as  the  ease  warrants.  Others  have  designed  spe- 
cial registers  for  their  acceptances. 

The  most  important  point  to  consider  in  installing  a 
system  is  to  make  it  broad  enough  to  cover  an  adequate  and 
simple  method  of  complete  records,  keeping  in  mind  the 
needs  of  the  system  in  future,  when  the  number  of  accept- 
ances may  increase.  It  is  believed  that  the  Standard  Form 
of  acceptance  register.  Figure  11,  fully  covers  all  necessary 
records  for  either  the  smallest  or  largest  number  of  accept- 
ances received  in  the  most  simple  and  complete  form. 

Another  form  of  register  which  is  easily  adapted  and 
used  (especially  by  firms  who  do  not  expect  to  handle  a 
large  number  of  acceptances)  is  a  modification  of  the 
Standard  Form,  Figure  11.  The  sole  variation  is  that,  in 
place  of  the  one  column  covering  the  due  date,  12  columns, 
one  for  each  month,  are  used,  but  otherwise  the  register 
is  the  same  as  the  Standard  Form,  Figure  11,  except  for 
size,  which  in  this  instance  is  8y^  inches  by  14  inches  or 
more. 

The  only  difference  in  entry  is  that,  instead  of  entering 
the  month  and  date  upon  which  the  acceptance  will  become 


RECORDING  TRADE  ACCEPTANCES  65 

due  in  the  column  headed  "due  date,"  in  Figure  11,  the 
date  is  entered  only  as  "3"  (third)  in  the  column  of  the 
month  during  which  the  acceptance  becomes  due.  By  this 
system  the  due  dates  of  acceptances  coming  due  in  each 
month  may  be  noted  by  running  up  the  column  for  such 
month.  This  plan  obviates  the  necessity  of  relying  on  a 
due  date  file  of  acceptances  to  keep  track  of  those  coming 
due.  However,  it  will  be  necessary  to  keep  the  acceptances 
filed  as  to  the  dates  upon  which  they  will  become  due. 

It  should  be  noted  that  in  using  this  latter  form  great 
care  will  be  necessary  in  entering  each  acceptance,  so  that 
the  due  date  is  entered  on  the  same  line  and  in  the  correct 
monthly  column,  and  also  in  checking  up  for  due  dates, 
so  that  the  correct  column  is  run  up  on  each  page.  When 
numerous  acceptances  are  recorded  each  month  (on  this 
form),  taking  many  pages  of  the  register  between  the 
date  of  entry  and  the  due  date,  it  will  be  very  necessary 
to  go  back  carefully  over  each  page  upon  which  an  unpaid 
acceptance  may  be  recorded.  In  cases  where  acceptances 
are  given  for  bills  of  goods  of  long  dating,  this  may  neces- 
sitate running  up  the  columns  for  many  months  or  as  far 
back  as  the  longest  dating,  which  may  mean  6,  9,  or  more 
months'  register  sheets  to  check. 

All  points  should  be  considered  in  the  choice  of  forms, 
especially  for  the  sake  of  simplicity  and  accuracy.  When 
the  acceptances  are  expected  to  cover  many  months  or  be 
considerable  in  number,  it  has  been  found  that  the  use  of 
the  Standard  Form  of  register,  Figure  11,  together  with 
the  checking  of  the  due  date  from  the  filed  carbon  copies 
of  the  acceptance  itself,  is  the  most  simple  and  accurate 
method. 

Method  of  Handling  Acceptances  After  Recording". — 
The  plans  in  Chapter  VIII,  covering  the  bookkeeping  and 
accounting  departments,  will  be  sufficient  to  illustrate  a 
standard  method  of  handling  acceptances  after  they  have 


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KECORDING  TRADE  ACCEPTANCES     67 

been  returned  accepted  and  entered  in  the  standard  or 
other  register;  the  usual  handling  of  bills  receivable  or 
payable  will  supply  a  balance  of  working  details. 

General  Plans  for  Checking-. — "When  a  firm  is  starting  to 
use  trade  acceptances  and  wishes  to  reach  the  greatest 
efficiency,  it  is  desirable  to  keep  quite  complete  records  and 
to  check  them  up  monthly  until  the  results  are  well  estab- 
lished. The  firm  should  then  concentrate  on  the  weak  spots 
and  adjust  methods  until  they  are  corrected.  The  points 
that  it  is  desirable  to  watch  are :  how  many  acceptances  are 
being  sent  out  and  their  amount  in  dollars ;  how  many  and 
what  amount  in  dollars  are  being  returned  accepted;  re- 
turns in  relation  to  the  size  of  acceptance ;  in  what  average 
time  the  acceptor  returns  same;  average  length  of  time  it 
takes  buyers  to  accept  first  acceptances;  average  of  those 
not  accepting,  who  do  not  pay  as  per  terms;  average  of 
those  not  accepting  who  discount  for  cash;  percentage  of 
returns  from  each  territory. 

Record  forms  may  be  adapted,  similar  to  that  in  Figure 
13,  for  gathering  data  that  it  is  desired  to  analyze.  The 
form  in  Figure  14  illustrates  the  various  daily  record 
sheets  which  may  be  devised  to  keep  temporary  records  of 
any  data  that  it  is  desired  to  gather  for  codification  in 
the  check-up  sheet.  These  special  sheets  for  gathering  data 
daily  are  only  necessary  when  a  large  number  of  accept- 
ances are  sent  out  and  it  is  desired  to  handle  all  details 
oftener  than  monthly. 

Results  Derived  from  Check-up  Records. — Like  any 
other  activity  or  plan,  it  is  found  that  the  procedure,  as 
well  as  the  results,  in  handling  trade  acceptances,  may 
vary  to  a  limited  degree  with  each  firm  handling  them, 
even  when  they  do  so  in  a  similar  manner ;  and  it  is,  there- 
fore, valuable  to  watch  results  in  detail,  at  least  until  it 
can  be  definitely  decided  that  modifications  of  the  various 
details  of  handling  would  not  be  to  advantage. 


(sl2E8fxir)0                                                                                    O                                                              ^                            O 
^                         '                                  STANDARD  DAILV  RECORD  SHEET  OF  TRADE  ACCEPTANCES 

SENT  OUT  FORM  NO.  6  — SHEET  NO. 
FOR  TRANSFER  TO  CHECK-UP  SHEET, 

AMOUNTS  (N  ROUND  FIGURES                                                                          DESIGNED  BV   BUSINESS  BOURSE,  NEW  YORK 

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RECORDING  TRADE  ACCEPTANCES  69 

The  more  complete  the  acceptance  records  and  compar- 
isons are,  the  more  quickly  can  the  results  be  applied  so 
as  to  produce  as  nearly  100  per  cent  returns  as  possible 
and  give  satisfaction  to  all  concerned.  The  latter,  in  its 
effect  on  the  relations  of  the  buyer  and  seller,  is  of  highest 
importance  to  ultimate  success. 


CHAPTER  VIII 

SOUND   ACCOUNTING   METHODS   FOR   HANDLING   TRADE   ACCEPTANCES 
BY    SELLER   AND    BUYER 

Trade-Acceptance  Accounting. — Since  accounting  meth- 
ods for  acceptances  cannot  be  made  entirely  uniform,  it  is 
probable  that  various  simple  modifications  will  suggest 
themselves  to  different  firms  as  they  adopt  the  trade  accept- 
ance in  their  business  and  proceed  to  handle  it. 

From  the  specimen  acceptances  and  the  explanation 
thereof  in  Chapter  II,  it  should  be  clear  how  the  trade 
acceptance  is  filled  out  and  handled  and  that  the  ''drawer" 
is  the  seller  and  the  "acceptor"  is  the  buyer,  or  "drawee." 
The  amount  of  the  acceptance  in  dollars  appears  in  the 
upper  left-hand  corner.  It  should  be  dated  at  the  place 
where  it  originated — the  seller's  city.  The  date  drawn 
should  be  that  of  the  shipment  or  billing.  But  if  it  is 
averaged  or  drawn  the  last  of  the  month,  or  the  first  day 
of  the  month  following,  the  acceptance  should  be  dated  ac- 
cordingly. 

In  the  upper  right-hand  corner  of  Figure  3  appears  the 
date  of  invoice.  If  the  acceptance  is  made  to  cover  several 
invoices  of  the  preceding  month,  their  dates  are  noted 
thereon.  These  notations  make  it  optional  whether  or  not 
a  statement  is  made  out  and  accompanies  the  acceptance. 
This  is  done  to  save  clerical  work  by  the  seller,  as  well  as 
to  fully  post  the  buyer  as  to  what  invoices  the  acceptance 
covers. 

The  blank  line  " after  date"  in  this  form 

(Figure  3)  can  be  filled  in  in  either  of  two  ways,  according 

70 


ACCOUNTING  METHODS  71 

to  the  desires  and  custom  of  the  seller.  It  may  read 
"sixty  days  (or  two  months)  after  date"  or  the  date  of 
maturity  of  the  acceptance  may  be  inserted  as  ''January  1 
after  date."  This  latter  is  much  the  preferable  method, 
as  it  obviates  the  necessity  of  figuring  just  what  day  the 
end  of  "30  or  60  days  after  date"  will  fall  on.  The 
carbon  copy  left  with  the  buyer  shows  him  the  exact  day 
on  which  the  acceptance  will  fall  due  and  will  be  pre- 
sented at  his  bank  or  other  place  designated  by  him  for 
payment. 

The  line  for  the  amount  of  the  acceptance  should  be 
filled  in,  as  in  a  check,  and  with  the  exact  amount  to  be 
paid  by  the  buyer  if  he  accepts  and  pays  the  acceptance ; 
that  is,  where  any  discount  is  given,  such  discount  should 
be  deducted  and  the  amount  of  the  acceptance  be  for  the 
original  debt  less  any  such  deductions.  Similarly,  if 
freight  or  other  allowance  is  known  and  is  to  be  deducted 
from  payment  by  buyer,  the  acceptance  should  be  for 
an  amount  equal  to  the  original  debt  less  all  such  deduc- 
tions, unless  it  is  preferred  to  settle  by  seller's  check  to 
the  buyer,  when  the  amount  is  ascertained.  This,  of  course, 
would  not  appl}'  to  a  cash  discount,  because  an  acceptance 
is  a  time  instrument  paying  a  credit  debt,  and  in  no  way 
represents  "cash  payment."  However,  an  acceptance  can 
cover  "cash"  purchases,  when  the  "cash"  terms  cover  a 
sufficient  period  of  time  to  warrant  it.  The  "cash  dis- 
count" should  be  deducted  in  such  cases.  When  interest 
is  to  be  added,  it  is  best  to  include  it  in  the  amount  of 
acceptance.  Interest  accrues  after  the  due  date  auto- 
matically when  the  acceptance  is  presented  and  not  paid. 

The  place  for  the  signature  of  the  seller  at  the  lower 
right-hand  corner  of  the  acceptance  should,  of  course,  con- 
tain the  name  of  the  seller  (drawer). 

Correct  Forms  for  Seller's  Name. — This  name  of  the 
seller  may  be  either  printed  on  the   acceptance,   put  on 


72  ACCEPTANCES 

with  a  rubber  stamp,  typewritten,  or  signed  by  hand,  or 
inserted  by  a  combination  of  same.  Unless  the  number  of 
acceptances  sent  out  is  prohibitively  large,  it  is  preferable 
to  have  part  of  the  signature  made  by  hand.  If  the  seller 
is  a  corporation,  the  name  of  the  company  may  be  printed 
and  the  name  of  the  official,  agent  or  employee  of  the 
corporation  may  be  signed  in  ink,  or,  if  this  is  not  reason- 
ably possible,  by  rubber  stamp. 

This  name  at  the  lower  right  of  the  acceptance  need  not 
be  a  legal  signature  or  by  a  person  authorized  to  sign 
checks  or  other  instruments,  but  the  firm's  name  (not 
official's  name)  should  correspond  to  the  indorsement  to 
be  made  on  the  back  of  the  acceptance  for  collection  or 
discounting.  The  latter  indorsement  must,  of  course,  be 
one  authorized  by  the  firm  for  regular  signatures  or  in- 
dorsements, and  the  name  or  names  of  officials  must  be 
signed  by  hand,  except  where  special  agreement  to  the 
contrary  is  made  with  the  bank. 

The  titles  printed  on  the  Standard  Form,  Figure  3,  are 
illustrative  and  may  be  modified  to  suit  the  needs  of  each 
firm  using  them.  If  it  is  probable  that  several  officials  of 
the  corporation  may  be  called  upon  from  time  to  time  to 
sign  acceptances,  it  is  well  to  provide  their  proper  titles 
below  the  line.  In  this  form,  by  striking  out  some  of  the 
printed  titles,  the  signature  of  president,  vice-president, 
treasurer,  assistant  treasurer,  comptroller,  or  assistant 
comptroller,  are  provided  for.  Titles  or  parts  of  titles  not 
needed  can  be  stricken  out  at  the  time  of  or  after  signing, 
or  may  be  stricken  out  when  the  body  of  the  acceptance  is 
being  filled  in  or  at  any  time  before  the  acceptance  is 
banked. 

How  the  Acceptance  Should  Be  Filled  In. — The  lines  at 
lower  left  of  the  trade  acceptance  are  for  the  name  of  the 
acceptor  and  his  city  or  state,  and  are  filled  in  when  the 
acceptance  is  made.    The  correct  name  of  the  buyer  should 


ACCOUNTING  METHODS  73 

be  carefully  designated.  The  seller,  or  maker,  of  the  trade 
acceptance  has  now  completed  his  part  of  the  accep- 
tance. 

The  buyer,  to  complete  the  acceptance,  must  fill  in  the 
red  lines  across  the  face  of  the  acceptance,  as  designated. 
He  may  do  this  with  ink  or  he  may  have  same  filled  in  with 
a  typewriter  or  otherwise,  except  for  that  part  of  his  sig- 
nature or  signatures  which  have  to  be  signed  by  hand  on 
his  checks.  When  the  acceptance  is  accepted  by  the  buyer, 
he  must  use  that  signature  which  he  has  authorized  his  bank 
to  honor  on  checks,  notes,  or  other  documents. 

The  wording  on  the  Standard  Forms  (Figures  1,  2  and 
3)  is  so  put  as  to  make  the  acceptance  negotiable  and  bind- 
ing on  all  signers  or  indorsers,  whether  the  buyer  makes  the 
acceptance  payable  in  his  home  city  or  at  a  bank  elsewhere 
in  the  United  States.  It  is  desirable  that  the  same  or 
similar  wording  be  used  on  all  acceptance  forms.  The 
acceptor  should  fill  in  on  top  line  the  name  of  his  city  and 
the  current  date  when  acceptance  is  accepted  by  him. 

Place  of  Payment. — It  is  legal,  though  not  customary, 
for  the  place  of  payment  to  be  other  than  the  acceptor's 
home  city.  The  acceptor,  if  he  wishes  to  pay  the  trade 
acceptance  through  his  bank,  should  insert  on  the  second 
line  the  name  of  the  bank,  banker,  or  trust  company  in  the 
United  States  where  he  desires  it  to  be  presented  for  pay- 
ment, and  on  next  line  the  city  and  state  in  which  the 
institution  is  located.  The  acceptor  may  make  the  accept- 
ance payable  elsewhere  than  at  a  banking  house.  This  is 
seldom  advisable  for  many  reasons  besides  the  ease  of  dis; 
count  and  the  economy  of  collection,  such  as  the  incon- 
venience of  having  the  acceptance  presented  at  one 's  place 
of  business,  which  necessitates  having  cash  or  a  certified 
check  on  hand  to  meet  the  acceptance  on  the  day  it  is  pre- 
sented. No  collection  notice  is  obliged  or  expected  to  be 
sent  to  the  acceptor  of  a  trade  acceptance,  which  was  ac- 


74  ACCEPTANCES 

cepted  payable  on  a  certain  day  at  a  certain  place,  any 
more  than  one  would  expect  to  receive  notice  of  a  check 
to  be  presented  at  the  bank. 

If  the  acceptor  designates  a  bank  where  he  has  funds 
to  meet  the  acceptance  on  the  day  it  will  be  payable,  the 
bank  can  pay  the  acceptance  without  notifying  him  of 
its  arrival,  and  charge  it  against  his  account  without  fur- 
ther instructions  from  him.  This  is  covered  by  his  order 
to  the  bank,  represented  by  his  signature  on  acceptance,  as 
worded  in  the  Standard  Forms. 

As  noted  in  Chapter  XI,  the  laws  of  a  few  states  do  not 
specifically  instruct  the  banks  to  pay  without  further  order, 
but  in  such  states  a  special  notation  on  the  acceptance  or 
a  letter  to  the  bank  can  so  instruct  that  the  bank  should 
comply,  when  the  acceptor  has  funds  in  their  hands  suffi- 
cient to  cover  the  obligation.  The  Standard  Form  (Figure 
3)  covers  this  point  in  all  States  by  its  special  wording, 
approved  by  the  Federal  Reserve  Board. 

If  it  is  desired  to  have  the  acceptance  payable  in  a  city 
other  than  the  acceptor's  own  city,  it  is  usual  to  arrange 
so  that  the  drawer  may  incorporate  this  feature  in  the 
acceptance  when  made,  since  this  is  necessary  to  conform 
with  the  law  of  some  states  relating  to  negotiable  instru- 
ments. However,  the  wording  on  standard  forms  (Figures 
1,  2,  and  3)  of  the  trade  acceptance  legally  covers  this  mat- 
ter in  whatever  way  it  is  handled. 

As  stated,  if,  when  making  out  the  original  acceptance 
according  to  the  Standard  Form  (Figure  3),  it  is  folded 
along  the  perforation  and  a  carbon  is  inserted  between  the 
original  and  the  duplicate,  the  buyer  is  furnished  with  an 
exact  copy  of  the  original  acceptance  (including  the 
amount,  the  due  date,  and  the  invoices  covered),  with  the 
exception  of  the  maker's  and  the  acceptor's  signature  and 
the  date  and  place  of  acceptance,  as  filled  in  by  the  buyer. 
The  buyer  may,  when  completing  an  acceptance  for  his 


ACCOUNTING  METHODS  75 

records,  note  on  the  duplicate  the  name  of  the  bank  or  place 
at  which  he  made  the  acceptance  payable.  This  copy  will 
serve  as  a  memo,  receipt  for  him  until  the  original  is 
returned  through  the  bank  when  paid,  furnishing  him  a 
permanent  receipt. 

Forms  similar  to  this  furnish  the  buyer  as  well  as  the 
seller  with  a  complete  record  of  the  transaction,  with  all 
necessary  data  included  thereon. 

Obtaining  Acceptance  with  Order. — Some  firms  who 
deal  in  standard  lines  of  goods  with  well-fixed  prices  and 
reputations  are  getting  trade  acceptances  signed  or,  rather, 
accepted,  by  the  buj^er  at  the  time  the  order  is  given  or 
signed.  In  such  cases,  when  the  order  is  taken  the  accept- 
ance is  made  out  by  the  seller  and  the  buyer  accepts.  If 
the  time  is  to  run  from  date  of  shipment,  the  date  of  the 
acceptance,  or  at  least  the  due  date  thereon,  is  usually 
not  filled  in  until  shipment  is  made,  unless  it  is  determined 
when  the  order  is  taken  what  is  the  proper  due  date  for 
the  acceptance.  In  the  case  of  dated  goods,  when  the  due 
date  is  predetermined  when  the  order  is  taken,  the  accept- 
ance can  be  filled  out  accordingly. 

Although  this  maj^  be  a  feasible  credit  plan  theoretically, 
it  is  one  that  can  be  employed  only  in  special  trades,  busi- 
nesses, or  conditions. 

Taking  acceptances  on  either  method  is  purely  optional 
and  as  agreed  by  the  parties  concerned.  Both  are  in  ac- 
cordance with  the  rulings  of  the  Reserve  Board,  as  quoted 
in  other  chapters,  and  the  latter  method  is  especially 
covered  by  the  following  opinion  quoted  from  a  letter  of 
the  Federal  Reserve  Bank  of  New  York: 

As  to  your  letter  in  whicli  you  asked  the  question  whether  a 
trade  acceptance  made  at  the  same  time  as,  or  soon  after,  the 
order  for  goods  is  given,  and  before  the  goods  are  manufactured 
or  shipped,  would  be  subject  to  rediscount  by  Federal  Reserve 
Banks,   our   Counsel   feels   that   this   would  depend   largely   on 


76  ACCEPTANCES 

the  question  of  good  faith.  If  the  purchaser  desires  to  pay  for 
his  goods  in  advance  of  their  being  manufactured  or  delivered, 
he  is  entitled  to  do  so  by  trade  custom  and  it  would  seem  that 
the  acceptance  or  note  which  he  executes  in  lieu  of  cash,  would 
be  arising  out  of  a  commercial  transaction  in  general  and  out  of 
the  purchase  of  goods  in  particular.  By  signing  such  an  ac- 
ceptance, however,  the  purchaser  puts  himself  completely  at  the 
honesty  of  the  manufacturer  or  seller  of  the  goods. 

The  foregoing  would  apparently  apply  to  a  contract, 
or  order  for  future  delivery,  on  which  an  acceptance  was 
given  in  advance  of  billing. 

Acceptance  Terms  Noted  on  Order  and  Invoice. — When 
a  strong  campaign  is  being  made  to  get  as  many  trade 
acceptances  returned  accepted  as  possible,  and  they  are 
being  featured  by  salesmen  and  in  other  ways,  it  has  been 
found  desirable  to  put  the  trade-acceptance  terms  on  the 
order  forms,  as  well  as  on  the  invoice.  When  acceptance 
is  optional,  putting  on  the  terms  on  the  order  is  a  mere 
matter  of  policy.  When  a  trade  acceptance  is  sent  with 
the  invoice,  with  a  special  notice  or  letter  as  to  terms,  it 
is  not  necessary  to  have  the  terms  on  the  invoice ;  neither, 
if  the  salesman  explains  the  terms,  is  it  necessary  to  have 
them  on  the  order  blanks. 

However,  investigation  shows  that  it  is  preferable  to 
have  all  such  matters  plainly  stated  and  understood  by 
the  buyer,  and,  where  this  is  done,  a  good  form  is  as 
follows : 

1.  Where  no  discount  is  offered  for  acceptance: — 

Terms : 
.  .  %    for   cash  . . .   days 

Net  on  trade  acceptance  ...      " 

"     "    open  accomit  ...      " 

2.  Where  discount  is  given  for  acceptance: — 

Terms : 

. .  %  for  cash  days 

. .  %     "    trade  acceptance  ...      " 

Net  on  open  account  ...      " 


ACCOUNTING  METHODS  77 

A  large  clothing  manufacturer  states  his  terms  as  fol- 
lows: 

" — :Our  Terms: — 2%  10  days,  60  days  net,  on  open  account, 
or  90  days  net  by  Acceptance." 

These  forms  should  varj-  as  the  terms  vary  and  the  word- 
ing may  be  adapted  to  suit  the  desires  of  the  seller. 

Dating  with  Cash  Terms. — When  dating  is  given  as  to 
both  net  and  cash  terms,  it  is  desirable  to  get  the  acceptance 
signed  at  once  or  when  the  charge  is  made.  In  this  in- 
stance it  is  usual  to  make  the  acceptance  for  the  full 
amount  of  the  charge  and  for  full  time,  and  not  for  the 
time  and  amount  as  per  cash  terms,  even  though  the  buyer 
usually  purchases  on  cash  terms. 

If  the  buyer  wishes  to  avail  himself  of  the  cash  terms 
before  the  acceptance  becomes  due,  he  can  at  any  time 
remit  the  charge  less  the  cash  discount  directly  or  through 
his  banker,  and  have  the  acceptance  he  has  accepted,  or 
its  equivalent,  returned  to  him.  However,  if  the  buyer 
agrees  at  the  time  the  acceptance  is  made  out  to  pay  for 
the  goods  on  cash  terms  and  date,  the  acceptance  can  be 
made  out  accordingly,  less  cash  discounts,  and  so  accepted. 
When  a  buyer  pays  part  cash  before  the  acceptance  be- 
comes due,  the  drawer  gives  him  credit  for  this  partial  pay- 
ment and  remits  this  amount  to  the,  bank  at  which  pay- 
ment is  to  be  made  on  the  due  date.  But,  if  he  deems  best, 
he  may  send  the  acceptor  a  remittance  covering  the  pay- 
ment, in  order  that  he  may  use  it  in  paying  the  acceptance 
when  presented  at  his  bank;  although  the  former  method 
is  preferable  and  safer.  Other  methods  of  adjustment  may 
be  arranged  through  banks  and  the  foregoing  methods  ad- 
justed according  to  varying  situations  or  policies. 

Terms  and  Methods  Employed  When  Acceptance  Is  Not 
Accepted. — It  is  not  usual,  in  this  country,  to  insist  upon 
the  acceptance  of  a  trade  acceptance ;  rather,  it  is  left  to 


78  ACCEPTANCES 

the  discretion  of  the  buyer  whether  or  not  he  accepts  and 
returns  the  trade  acceptance  to  the  seller.  When  it  is 
optional,  and  the  buyer  does  not  accept,  the  account  is 
handled  as  the  usual  open  account  and  is  treated  as  if  no 
acceptance  form  had  been  sent  to  the  buyer  for  his  decision. 
•If  acceptances  are  insisted  upon  as  part  of  the  terms  of 
sale,  it  is  obligatory  for  the  buyer  to  accept,  and  should  he 
not  do  so,  the  seller  can  take  appropriate  means  to  enforce 
the  acceptance,  such  as  drawing  for  the  amount  through  a 
bank  by  a  sight  draft  or  by  a  time  draft,  which  amounts 
to  the  same  thing  as  a  trade  acceptance.  Should  this  fail, 
action  for  non-fulfillment  of  terms  might  be  instituted, 
although  no  standard  form  of  procedure  is  suggested. 

However,  along  with  the  first  few  acceptances  sent  to 
each  customer,  most  firms  prefer  to  send  one  or  more  let- 
ters, suggesting  the  acceptance  be  accepted  and  returned, 
in  order  to  get  the  buyer  in  the  habit  of  accepting  as  soon  as 
possible.  Educational  data  are  desirable  at  this  time  as 
suggested  in  Chapter  IX. 

In  some  cases,  salesmen  are  used  to  assist  in  obtaining 
the  acceptances.  One  large  manufacturer  of  farm  equip- 
ment reports  his  method  as  follows: 

If  a  salesman  happens  along  at  a  point  where  a  trade  ac- 
ceptance should  be  picked  up,  and  the  dealer  has  not  sent  it  in, 
he  asks  the  dealer  about  it  and  if  he  cannot  find  the  one  which 
the  office  has  sent,  the  traveler  then  and  there  makes  up  one, 
leaving  the  signature  for  this  company  blank,  but  the  purchaser 
signs  it  across  the  face.  In  most  cases,  however,  the  traveler  is 
able  to  locate  the  one  we  sent  with  invoice,  for  the  reason  that 
most  dealers  keep  their  invoices. 

Record  of  Acceptances. — When  a  trade  acceptance  is 
made  and  sent  out  with  the  invoice  (or  to  cover  several 
invoices),  as  explained,  it  is  not  necessary  to  make  a  copy 
or  entry  of  it,  since  a  trade  acceptance  is  not  in  force 
until  it  is  accepted  by  the  buyer  and  returned  to  the  seller, 


ACCOUNTING  METHODS  79 

who  then  can  make  records  from  the  returned  acceptance 
itself.  However,  the  desires  of  the  drawer  will  prevail  in 
all  such  details.  Records  have  been  arranged  by  carbon 
copies  of  the  Standard  Form  of  acceptance  (Figure  3)  and 
on  the  Standard  Register  for  acceptance,  as  described  in 
Chapter  VII. 

War  Stamps  on  Acceptance. — Under  the  War  Revenue 
Act  of  October  3,  1917,  a  revenue  stamp  must  be  affixed 
and  cancelled  on  each  acceptance,  at  the  rate  of  2  cents 
for  each  $100  or  fraction  thereof.  This  need  not  be  done 
until  the  acceptance  has  been  accepted  and  returned  to 
the  drawer  by  the  acceptor,  as  per  the  following  opinion 
of  the  Internal  Revenue  Department: 

The  general  rule  is  that  a  taxable  draft  or  cheek  becomes  sub- 
ject to  the  tax  concurrently  with  its  delivery.  In  the  case  of 
a  draft  the  rule  means  that  the  tax  attaches,  not  when  it  is  signed 
by  the  drawer,  or  presented  to  the  drawee  for  acceptance,  or  ac- 
cepted by  him,  but  when  it  is  delivered  to  the  payee,  if  drawn 
to  a  third  person,  or  negotiated  by  the  drawer,  if  drawn  to  his 
order,  whether  such  delivery  or  negotiation  takes  place  before 
or  after  acceptance. 

Follow-up  Forms  on  Trade  Acceptance. — ^Various  forms 
of  follow-up  are  used  to  insure  payment  of  the  acceptance 
when  due,  when  the  acceptor  is  not  supposed  to  keep 
accurate  records  of  his  acceptances  or  until  he  becomes 
accustomed  to  them.  These  follow-up  media  take  the  form 
of  short  letters  or  printed  notices  to  the  acceptor,  remind- 
ing him  of  the  due  date,  the  bank  where  payable,  and 
amount  of  the  acceptance.  The  most  simple  reminder  and, 
at  the  same  time,  the  one  least  apt  to  cause  displeasure,  is 
an  extra  carbon  copy  of  the  original  acceptance,  made  as 
on  the  Standard  Form  (Figure  3)  and  put  in  the  tickler 
to  come  up  a  few  days  before  the  due  date,  in  order  that 
it  may  be  mailed  to  the  acceptor,  as  described  in  other 
chapters. 


80  ACCEPTANCES 

Book  Entries  of  Acceptance. — The  receipt  of  an  ac- 
cepted trade  acceptance  is  the  same  as  the  receipt  of  a 
check  or  note  in  payment  of  an  invoice  or  an  account. 
It  should  be  considered  as  a  settlement  of  the  charge  repre- 
sented by  the  acceptance  and,  if  customary,  an  acknowledg- 
ment or  receipt  should  be  sent  to  the  buyer,  although  this 
is  not  necessary,  because  the  acceptance,  when  paid  and 
returned  to  him,  wall  act  as  his  receipt.  A  carbon  copy  of 
acceptance,  properly  inscribed,  may  be  used  for  this  pur- 
pose. However,  where  the  Standard  Form  (Figure  3)  of 
trade  acceptance  is  used,  the  buyer  has  left  in  his  posses- 
sion a  complete  carbon  copy  of  the  acceptance  he  has 
signed,  including  the  date  or  dates  of  the  invoice  or  in- 
voices or  the  statement  settled  thereby,  and  it  is  superfluous 
to  send  a  receipt. 

When  returned  properly  accepted,  acceptances  should 
be  entered  to  the  credit  of  the  buyer  and  charged  to  an 
account  designated  "Trade  acceptances  receivable"  and  so 
listed  in  statements.  This  charge  cannot  be  properly  car- 
ried under  "Accounts  receivable"  or  "Notes  receivable," 
being  sometimes  rated  better  than  either  of  these  for  the 
same  grade  of  credit. 

The  entry  of  the  trade  acceptance  in  the  books  or  ledger 
is  often  marked  "T.  A."  for  identification  and  information 
in  considering  the  granting  of  further  credit  pending  the 
paymentof  the"T.  A." 

When  acceptances  which  have  been  entered  under  ' '  Trade 
acceptances  receivable"  are  discounted,  they  are  entered 
in  a  "Trade  acceptances  receivable  discounted"  account, 
which  offsets  the  same  amount  in  the  "Trade  acceptances 
receivable"  account  and  shows  contingent  liability  on 
unpaid  acceptances  discounted.  However,  they  may  be 
taken  out  of  the  "Trade  acceptances  receivable"  account 
and  handled  in  the  same  way  as  any  other  paper  that  is 
discounted.     They  are  not  then  an  asset  or  a  direct  liabil- 


ACCOUNTING  METHODS  81 

ity,  but  may  be  shown,  when  making  a  statement  of  con- 
dition, in  a  footnote,  as  "acceptances  discounted,  contin- 
gent liability"  until  paid  by  the  acceptor.  The  former 
is  considered  the  more  conservative  and  proper  method. 

Detail  Records  of  Acceptances  Discounted. — Various 
methods  of  handling  the  detail  records  of  discounted  ac- 
ceptances are  used.  The  Standard  Form  of  trade-accept- 
ance register  will  allow  entries  of  all  details,  together  with 
the  regular  book  entries,  and,  when  desired,  carbon  copies 
of  the  acceptance  may  be  used.  Some  firms  clip  together 
the  carbon  copies  of  the  acceptances  discounted,  with  a 
memo,  showing  the  total  (added  on  an  adding  machine),  to 
form  a  checking  record  for  each  lot  discounted,  and  enter 
the  total  in  "acceptances  receivable  discounted"  and  the 
account  with  the  bank. 

When  Not  Paid  at  Due  Date. — Should  an  acceptor  not 
pay  the  trade  acceptance  on  presentation,  whether  pro- 
tested or  not,  it  will  be  handled  like  an  unpaid  note,  and 
the  holder  will  have  cause  for  action,  primarily,  against 
the  acceptor  on  the  acceptance  ;  next,  against  the  indorsers ; 
and,  finally,  against  the  drawer  of  the  trade  acceptance, 
with  interest  from  the  due  date.  It  is  not  necessary  or 
desirable  (although  permissible)  to  say  anything  on  the 
acceptance  form  about  interest  after  due  date. 

When  not  paid,  the  bank  will  return  the  acceptance  to 
the  one  who  has  placed  the  acceptance  for  collection  or 
discounted  it,  and  if  it  is  discounted  and  credited  to  his 
account,  it  will  be  charged  back  with  interest  and  charges 
in  the  usual  way.  If  it  has  been  put  in  for  collection,  the 
bank  will  make  the  usual  charges  when  returning.  Entries 
in  books  of  record  should  be  made  accordingly,  to  debit  the 
account  of  the  one  from  whom  the  acceptance  was  received 
and  to  credit  the  account  of  the  bank  or  one  handling  the 
acceptance,  with  any  other  offsetting  entries. 


82  ACCEPTANCES 

The  holder,  when  notified  of  non-payment,  will  ask  for 
settlement  from  the  acceptor  by  check  or  note,  or,  if  he 
is  the  drawer  (and  it  seems  necessary  or  good  policy),  he 
may  again  charge  it  to  the  buyer's  open  account.  In  other 
words,  an  acceptance  requires  the  same  handling  as  a  note 
or  a  check,  not  paid  upon  presentation;  and  the  same 
methods  and  records  should  be  used  by  the  seller  that  he 
would  employ  under  such  circumstances.  Discretion  and 
reasonable  leniency  should  be  used,  especially  in  first  cases 
of  the  kind. 

Methods  to  Usa  When  Extension  of  Time  Is  Desired.— 
If  the  acceptor  asks  for  an  extension  of  time,  desiring  not 
to  meet  the  trade  acceptance  at  maturity,  it  will  then  be 
possible  for  the  drawer  to  handle  the  matter  in  one  of 
several  ways,  should  he  not  wish  to  let  the  acceptance  be 
presented  and  embarrass  the  acceptor. 

Various  plans  will  suggest  themselves  besides  the  one  of 
again  charging  the  amount  to  the  buyer's  open  account. 
The  drawer  may  ask  the  acceptor  to  send  a  note,  for  all 
or  part  of  the  amount,  dated  at  the  time  the  original 
charges  are  due  (with  or  without  interest).  On  receipt 
of  this  note  tlie  drawer  of  the  trade  acceptance  can  return 
the  signed  acceptance  to  the  acceptor  (if  he  has  it  in  his 
possession).  If  it  has  been  discounted,  and  it  is  too  late, 
or  if  he  does  not  desire  to  recall  it  from  the  bank,  the 
drawer  may  send  the  remittance  to  the  acceptor's  bank 
with  instructions  to  use  it  to  pay  the  acceptance.  If  he 
wants  to  protect  the  acceptor  and  considers  it  prudent, 
the  drawer  may  send  the  remittance  to  the  acceptor,  for 
all  or  part  of  the  acceptance,  requesting  the  acceptor  to 
meet  the  trade  acceptance  when  presented.  Thereafter  the 
drawer  can  make  what  arrangements  he  deems  best  for  the 
payment  to  him  of  the  obligation  by  the  acceptor.  It  will 
be  understood  that  if  the  holder  of  the  acceptance  is  not 
the  drawer,  those  concerned  with  the  acceptance  to  whom 


ACCOUNTING  METHODS  83 

he  looks,  and  who  are  liable,  for  its  payment,  are,  respec- 
tively, tlie  acceptor,  the  indorser  or  indorsers,  and  the 
drawer. 

Handled  Similarly  to  Notes  Receivable. — In  general,  the 
trade  acceptance  can  be  handled  in  the  same  way  as  notes 
receivable,  but,  as  stated,  it  should  not  be  included  under 
that  caption  but  under  the  heading  "trade  acceptances 
receivable"  and  should  be  so  entered  in  the  books  and  also 
in  any  statements  that  are  made.  However,  if  it  is  expected 
to  handle  many  acceptances,  the  usual  methods  of  handling 
notes  will  be  somewhat  cumbersome. 

Nevertheless,  records  are  often  found  to  be  valuable  for 
checking  up  results  and  averages.  Carbon  duplicates  sim- 
ilar to  the  Standard  Form  of  trade  acceptance  are  easily 
made  for  this  purpose,  and  are  best  numbered  in  serial 
and  in  duplicate  with  the  originals,  as  heretofore  described. 

Procedure  in  Handling*  Acceptances  Received. — It  will 
probably  be  well  to  have  one  clerk  handle  all  the  filing  and 
check-up  of  trade  acceptances.  When  trade  acceptances 
are  received,  it  is  optional  either  to  offer  them  for  discount 
(if  that  is  desired,  in  order  to  have  the  use  of  the  money) 
or  to  keep  them  in  one's  ''portfolio"  for  future  discount 
or  for  putting  through  for  collection  at  the  due  date. 

The  person  in  the  treasury  department  or  the  bookkeep- 
ing department  handling  this  matter  (who  should  be  a 
person  of  judgment)  may  mark  with  a  pencil  in  the  upper 
left-hand  corner,  or  elsewhere  on  the  trade  acceptance, 
the  date  on  which  it  should  be  sent  to  the  bank  for  collec- 
tion, allowing  sufficient  time  for  it  to  arrive  at  the  bank 
where  it  is  payable.  The  file  clerk  files  it  in  the  portfolio 
(divided  into  days  and  months  for  the  12  months)  under 
the  date  marked  to  come  up  then  to  be  sent  for  collection. 
If  the  acceptance  is  filed  under  the  due  date  it  must  be 
taken  out  in  sufficient  time  for  collection. 


84  ACCEPTANCES 

Each  day  the  file  clerk  can  remove  from  the  portfolio 
all  trade  acceptances  filed  under  that  date  and  clip  them 
together,  handing  them  to  the  treasury  department  for 
further  action.  The  treasury  department  then  decides  upon 
the  banks  through  which  it  will  handle  them  and  proceeds 
accordingly. 

Even  though  the  trade  acceptance  is  to  be  discounted 
at  once,  or  in  a  few  days  after  it  is  received,  it  is  advisable 
to  file  it  in  the  portfolio  according  to  collection  date,  unless 
it  is  handled  immediately  at  the  time  of  receipt.  In  this 
way  it  can  be  readily  removed  from  the  portfolio,  if  it  is 
desired  to  discount  it  the  next  day,  or  in  a  few  days,  or 
at  any  time  thereafter,  before  it  is  due. 

In  discounting,  it  is  usually  the  most  economical  course 
to  discount  the  trade  acceptances  which  have  the  longest 
time  to  run,  or  for  as  great  a  time  as  the  bank  will  allow 
discount,  in  order  to  distribute  and  minimize  any  collection 
or  service  charge. 

Any  dates  or  details  desired  can  easily  be  obtained  from 
the  register  sheet,  for  if  at  any  time  it  is  desired  to  take 
the  acceptance  from  the  portfolio  file,  it  will  be  easily 
located  according  to  collection  dates.  By  this  procedure 
the  register  furnishes  a  complete  record,  besides  the  post- 
ings and  transfers  to  the  regular  books,  and  the  portfolio 
keeps  the  trade  acceptances  safely  and  in  correct  order  as 
to  collection  or  due  date. 

Irrespective  of  how  the  acceptances  are  to  be  handled, 
they  should  be  completely  recorded  in  an  approved  register. 
In  order  to  minimize  the  detail,  it  is  desirable  to  enter  as 
few  items  regarding  trade  acceptances  in  the  regular  books 
of  records  as  possible,  and  even  to  minimize  the  entries  in 
the  register  so  as  to  economize  labor,  especially  when  many 
acceptances  are  received  daily.  AVhen  fewer  items  are 
handled,  more  elaborate  systems  of  handling  and  recording 
may  be  used,  as  outlined  in  Chapters  III  and  VII. 


CHAPTER  IX 

INSTRUCTIONS    AND    LETTERS    TO    SALESMEN    AND    CUSTOMERS,    AND 
HOW   TO   HANDLE  THEM 

Methods    of    Presenting-    the    Acceptance    Theory. — 

Whether  or  not  a  customer  is  given  the  choice  as  to  credit 
terms,  it  will  be  valuable  in  obtaining  his  good  will  and 
cheerful  cooperation  to  post  him  thoroughly  about  the 
trade-acceptance  terms  and  the  benefits  to  be  derived 
therefrom.  It  has  been  found  desirable,  therefore,  to 
consider  carefully  how  many  plans  and  letters,  intended  to 
''sell"  the  trade  acceptance  to  customers,  can  be  employed 
to  advantage  in  a  campaign,  even  though  the  customer  has 
no  option,  but  is  obliged  to  pay  cash  or  by  trade  acceptance. 

In  a  case  in  which  the  customer  has  a  choice  of  open 
account  terms  or  the  trade  acceptance,  it  is  very  obvious 
that  if  it  is  expected  to  wean  him  from  the  old,  easy-going, 
satisfactory  (to  him),  easily  stretched  credit  terms,  all 
fair  methods  must  be  used  to  interest  him  and  to  "sell" 
him  the  new  terms.  Personal  touch  and  explanation,  of 
course,  in  such  a  campaign,  as  in  any  other  selling  plan, 
are  by  far  the  best  methods.  Whenever  it  is  possible  to 
come  into  touch  with  a  buyer's  financial  department,  a 
personal  explanation  of  the  trade  acceptance  plans  and 
benefits  is  found  most  effective. 

However,  on  account  of  the  complexity  of  business  to- 
day, the  large  number  of  customers,  and  the  infrequency 
with  which  it  is  possible  to  get  them  in  personal  contact 
with  the  officers  or  executives  of  the  firm,  other  adequate 
plans,  which  may  be  put  into  universal  operation,  have 

85 


86  ACCEPTANCES 

been  devised.  As  explained  elsewhere,  when  the  salesmen 
come  in  contact  with  the  credit  department,  they  can  help 
greatly  in  supplying  this  personal  touch  and  explanation 
of  the  misunderstood  points  about  trade  acceptances,  pro- 
vided they  are  themselves  well  instructed  in  the  ''ins  and 
outs"  of  the  trade-acceptance  terms  and  procedure. 

Personal  Letters  from  Ofl&cials. — To  relieve  or  assist 
both  the  officials  and  the  salesmen,  it  has  been  found  help- 
ful, if  not  practically  indispensable  with  those  not  thor- 
oughly familiar  with  acceptances,  to  make  the  appeal  to  the 
buyer  by  a  well-considered  "personal  letter"  from  an  offi- 
cial or  executive  of  the  firm.  Experience  has  proved  that 
where  a  buyer  can  "talk  it  over"  with  a  principal  in  the 
firm,  he  is  apt  to  agree  to  "accept,"  and  since  a  letter  from 
an  executive  is  the  next  best  thing,  it  has  been  found  to  have 
considerable  effect.  The  letter  may  be  couched  in  friendly 
terms,  and  contain  a  short  discussion  of  the  principles  arid 
the  object  of  the  movement,  and  an  appeal  to  the  buyer  to 
help  along  a  worthy  cause.  A  suggestion  can  also  be  made 
that,  if  desired,  the  signer  of  the  letter  would  be  glad  to 
discuss  the  subject  further. 

From  investigation,  the  letters  in  this  chapter  have 
proved  to  be  along  successful  lines,  although  it  is  advisable 
to  modify  them  sufficiently  to  give  the  personal  tone  of  the 
firm  sending  them,  so  that  they  will  be  appropriate  to  and 
appeal  mostly  to  the  class  of  customers  to  whom  they  are 
going. 

These  letters  are  very  important  and  should  receive  care- 
ful thought  in  their  construction  and  composition,  to  make 
sure  that  each  letter  will  "get  over"  with  the  buyer  who 
receives  it.  The  sender  is  already  "sold,"  but  the  letter 
must  "sell"  the  customer.  Whether  the  endeavor  should 
be  made  to  "sell"  the  buyer  with  one  letter,  or  whether, 
in  case  he  does  not  "accept"  after  receiving  the  letter  with 
the  first  acceptance,  it  should  be  followed  up  with  others 


INSTRUCTIONS  TO  CUSTOMERS  87 

until  he  does  accept,  may  be  decided  according  to  the 
conditions  prevailing  in  an  individual  business. 

Credit  Department  Follow-up. — The  most  successful 
plan  seems  to  be  to  send  a  series  of  three  letters  as  follow- 
ups  of  the  first  acceptance  sent,  and,  if  they  do  not  induce 
a  signing  of  the  first  acceptance,  to  continue  them  with  the 
next  several  trade  acceptances  sent  to  this  customer,  or 
until  he  is  heard  from  or  he  "accepts."  This  follow-up 
scheme  can  be  left  to  the  credit  department,  which,  when 
the  trade  acceptance  is  made  out,  can  arrange  for  the  kind 
of  letters  to  acompany  it,  dependent  on  whether  the  buyer's 
account  shows  that  he  has  paid  with  trade  acceptance  or 
not.  (Payments  by  trade  acceptance  are  usually  noted  in 
the  ledger  accounts  of  each  customer.) 

By  using  the  form  in  Figure  3,  or  a  similar  form  of 
trade  acce]3tauce,  as  reproduced  and  explained  elsewhere 
in  this  book,  this  method  of  sending  letters  is  easily  handled 
and  followed  up,  because  the  duplicate  acceptance  can 
furnish  all  the  necessary  machinery  to  put  the  system  into 
operation  and  carry  it  through  simply,  without  the  neces- 
sity of  making  any  special  records. 

The  tenns  mentioned  in  the  following  letters  should  he 
modified  to  agree  with  the  firm's  trade  acceptance  terms. 
They  are  not  presented  as  model  terms,  but  are  merely  as 
illustrations  of  various  ones  in  use. 

Typical  First  Form  Letter  on  Trade  Acceptance. — The 
following  is  a  typical  first  form  letter,  sent  to  each  cus- 
tomer with  the  first  trade  acceptance,  or  until  he  accepts. 
The  wording  in  parentheses  should  be  omitted  except  when 
inducements  are  offered  for  signing  the  trade  acceptance : 
Gentlemen  : 

We  take  pleasure  in  notifying-  you  of  the  favorable  terms 
which  we  are  enabled  to  offer  you  through  arrangements  we  have 
made,  under  the  Federal  Reserve  Banking  Law,  covering  the 
medium  of  paying  bills  by  trade  acceptances  instead  of  by  check, 
etc. 


88  ACCEPTANCES 

You  may  have  60  days  on  settlement  from  the  first  of  the 
month  following  the  date  of  shipment.  (We  deduct  from  the 
invoice  I/2  of  1  per  cent,  as  per  the  trade  acceptance  attached  to 
it.  This  results  in  a  substantial  extra  profit  to  you  on  all 
transactions  with  us  closed  in  this  way,  and  also  applies  when 
the  acceptance  is  sent  with  the  monthly  statement.) 

As  you  are  probably  aware,  the  trade-acceptance  plan  of  ac- 
knowledg'ins:  a  shipment  and  settling  for  it  at  the  same  time,  is 
an  eminently  fair  one  and  is  approved  by  the  Federal  Reserve 
Board,  the  Federal  Reserve  Banks  throughout  the  country,  busi- 
ness men's  associations,  and  the  Credit  Men's  Association,  which 
resolved  that:  "The  31st  National  Convention  of  Credit  Men 
clearly  and  emphatically  go  on  record  as  favoring  the  steady 
and  rapid  substitution  of  trade  acceptances  for  open  accounts.'' 
No  doubt  you  would  like  to  cooperate. 

You  need  only  write  across  the  face  of  the  trade  acceptance 
the  date,  the  name  of  the  bank  where  you  want  us  to  present  it 
for  payment  Avhen  due,  and  your  signature  as  it  appears  on 
your  cheeks.  Your  bank  will  i^ay  the  acceptance  when  due  and 
charge  it  to  your  account  the  same  as  it  would  your  check  and 
return  it  to  you  with  your  cancelled  checks.  Thus  you  will  have 
a  complete  record  of  the  transaction  in  this  one  paper.  This 
method  differs  little  from  the  payment  of  your  bills  when  due 
by  check  except  that  it  is  more  simple  for  all  concerned  (and 
carries  a  special  benefit  to  you  in  return  for  the  benefit  we  de- 
rive from  this  plan  of  carrying  our  account). 

[Here  may  be  inserted  a  sentence  about  return  and  credit 
privileges,  worded  to  suit  the  firm's  usual  methods;  such  as, 
"any  privileges  of  return  or  credit  for  goods  not  satisfactory 
for  any  reason  remain  the  same  as  before,  also  our  motto  'Sat- 
isfaction or  Money  Back.' "] 

Thanking  you  in  advance  for  your  cooperation,  since  we  be- 
lieve this  plan  will  appeal  to  you  as  business-like  and  fair,  and 
soliciting  a  continuance  of  your  valued  orders,  we  remain, 

Cordially  yours, 

[Preferably  signed  by] 

President 
or  Treasurer. 

N.  B. — A  governor  of  the  Federal  Reserve  Bank  says :  "Pay- 
ing by  trade  acceptance  benefits  the  credit  of  the  buyer."  An 
authority  states  that :     "Those  discounting  or  paying  bills   by 


INSTRUCTIONS  TO  CUSTOMERS  89 

trade  acceptance  often  get  favors   not  received  by  buyers  on 
open  account." 

If  you  take  a  cash  discount,  please  return  the  trade  acceptance 
to  us  unsigned  with  your  check.  If  we  do  not  receive  either, 
we  will  understand  that  you  wish  us  to  handle  the  account  as 
heretofore,  in  which  case  our  net  terms  are  the  same. 

When  this  letter  accompanies  bills  having  future  dating, 
the  following  may  replace  the  last  paragraph: 

Should  you  wish  to  take  the  cash  discount  by  the  10th  of  the 
month  following  the  due  date,  as  per  dating,  you  may  at  that 
time  send  us  your  check  for  the  face  of  bill  less  2  per  cent  for 
cash  and  we  wili  return  to  you  the  trade  acceptance  you  sign 
at  this  time. 

Typical  Second  Form  Letter  on  Trade  Acceptance. — 

This  letter  is  sent  to  a  customer  12  days  after  the  first 
trade  acceptance,  if  it  has  not  been  returned: 

Gentlemen  : 

Our  (President  or  Treasurer)  took  great  pleasure  in  advising 
you  of  our  company's  special  credit  terms  on  trade-acceptance 
settlements. 

I  would  be  veiy  glad  to  discuss  with  you  further  this  very 
efficient  method,  now  being  adopted  by  the  most  progressive 
manufacturers  and  merchants,  large  and  small,  the  entire  country 
over. 

(Our  offer  affords  you  an  extra  discount  at  no  cost  to  you.) 
Please  sign  and  return  the  trade  acceptance  to  us,  for  in  order 
to  make  it  of  value  we  should  have  it  in  hand  promptly.  This 
puts  no  additional  obligation  on  you,  and  it  enables  us,  through 
the  Federal  Reserve  Banking  Law,  to  use  your  acknowledgment 
of  our  shipment  of  goods  to  you  to  anticipate  our  engagements 
and  thias  affords  a  benefit  which  we  would  be  glad  to  reciprocate. 

Remember  "Service  and  Satisfaction"  are  our  hobbies,  and  if 
you  have  any  complaints  to  make  before  or  after  payment,  ad- 
vise us  at  any  time.     We  settle  all  cash  claims  by  our  check. 

We  should  appreciate  your  cooperation  in  our  efforts  to  put 
into  force,  as  generally  as  possible,  this  popular  credit  plan. 
Always   awaiting   your   commands   with    interest,    we   remain, 

Sincerely  yours. 

Assistant  Treasurer. 


90  ACCEPTANCES 

P.  S.  We  would  much  appreciate  your  signing  and  mailing 
to  us  our  trade  acceptance  that  you  now  hold. 

This  letter  should  preferably  be  signed  by  "Assistant 
Treasurer,"  or  some  official  other  than  "Auditor"  or 
"Credit  Manager"  or  one  who  usually  signs  "dunning" 
letters. 

Typical  Third  Form  Letter  on  Trade  Acceptance. — This 
letter  is  sent  to  the  customer  20  days  after  the  first  trade 
acceptance,  if  it  has  not  been  returned: 

Gentlemen  : 

We  esteem  you  as  one  of  our  valued  customers  to  whom  we 
wish  to  extend  all  the  favors  possible.  We,  therefore,  again 
take  the  liberty  of  bringing  to  your  attention  (before  it  will  be 
too  late  for  you  to  take  advantage  of  these  benefits  our  terms 
offered  for  settlement  by)  the  trade  acceptance  sent  you. 

We  ourselves  are  finding  many  advantages  in  paying  for  our 
time  purchases  with  trade  acceptances,  such  as  the  best  prices, 
prompt  shipment  of  orders  and,  in  fact,  many  of  the  favors 
given  by  those  whose  bills  we  discount  for  cash. 

In  effect  we  find  that  this  plan  stands  for  even  exchange  be- 
tween buyer  and  seller.  The  seller  ships  valuable  goods  to  the 
buyer  and  the  buyer,  by  the  simple  signing  of  an  "acknowledg- 
ment" of  the  shipment  and  by  stating  the  date  on  which  he  will 
pay,  gives  to  the  seller  an  equivalent  for  his  goods,  which  is  not 
due  a  day  before  the  bill  is  due.  You  can  thus  give  a  certain 
advantage  to  the  one  selling  you  goods,  which  he  will  not  be 
slow  to  ai^iDreeiate  and  to  return  to  you  in  many  ways. 

When  all  merchants  use  and  "accept"  trade  acceptances  in  this 
country  (as  they  now  do  in  Europe)  the  United  States  of  Amer- 
ica will  have  complete  preparedness  in  business  settlements,  and 
money  panics  and  their  resulting  hard  times  will  be  done  away 
with. 

We  always  appreciate  your  favors  and  cooperation. 
Yours  sincerely. 


Letters  to  Salesmen. — It  is  a  well-known  fact  that  sales« 
men  need  "ginger  letters"  to  instill  enthusiasm  for  any 
new  line — acceptances  included.     The  following  are  speci- 


INSTRUCTIONS  TO  SALESMEN  91 

men  letters  to  salesmen  in  spreading  trade-acceptance  the- 
ory. It  should  be  noted  that  the  terms  inserted  should  be 
as  used  by  the  firm  sending  out  any  letter,  and  that  the 
matter  in  parentheses  in  this  sample  letter  should  be  used 
only  when  it  is  in  accordance  with  the  terms. 

Re  Trade  Acceptance 

To  Our  Business  Engineers  : 

Effective  January  1st,  this  company  will  make  an  addition 
to  its  terms  of  sale  by  adopting-  the  trade-acceptance  plan,  so 
earnestly  indorsed  and  recommended .  by  the  Federal  Reserve 
Banks,  the  National  Association  of  Credit  Men,  and  the  many 

manufacturers  who  have  adopted  it  [or  "the  association  of  

manufacturers,"  if  your  trade  association  has  indorsed  the  move- 
ment] .     Oil  and  after  that  date  our  terms  will  be : 

2  per  cent  for  cash  the  10th  of  month  following  shipment,  or 

Trade  acceptance  due  60  days  after  first  of  month  follow- 
ing shipment. 

[or  "We  deduct  in  the  trade  acceptance  Yz  of  1  per  cent  from 
the  face  of  the  invoice,  as  an  extra  inducement  for  signing  the 
trade  acceptance,  provided  the  trade  acceptance  is  signed  and 
returned  promptly  upon  its  receipt  by  the  customer."] 

Although  this  collection  plan  has  been  used  extensively  and 
successfully  in  foreign  countries,  its  use  was  not  feasible  in  this 
country  until  the  adoption  of  the  present  Federal  Resei"ve  Bank- 
ing Law,  one  main  Object  of  which  was  to  provide  for  elasticity 
in  credit  relations. 

The  value  of  the  Federal  Reserve  Act,  as  a  stabilizer  upon 
business  to  prevent  panics  and  to  utilize  the  merchandise  of  the 
nation  as  a  basis  for  currency,  has  perhaps  seemed  to  you  an 
academic  proposition,  something  for  masters  of  high  finance 
only.  But  there  is  in  it  a  very  practical  feature,  for  it  is  a 
distinct  step  forward  in  the  business  methods  of  this  country 
which  affects  the  small  merchant,  the  big  city  merchant,  and 
the  manufacturer  alike.  Liquid  credits  often  cut  down  selling 
cost. 

As  you  may  know,  a  "trade  acceptance"  is  a  paper  the  size 
of  a  check,  worded  just  about  as  simply,  which  we  will  send  to 
the  customer  with  the  invoice  or  statement  (sample  is  attached). 

The  customer  sees  that  the  bill  is  correct  as  to  price,  amount. 


92  ACCEPTANCES 

terms,  and  all  other  particulars,  and  simply  writes  across  the 
face  of  the  trade  acceptance  the  date,  the  name  of  his  bank,  and 
his  name,  and  returns  it  to  us.  If  he  has  no  bank  account,  he 
simply  makes  the  trade  acceptance  payable  at  his  own  place  of 
business.  He  does  not  worry  any  more  about  the  bill  because 
he  has  settled  it  with  the  acceptance,  and  at  the  end  of  a  num- 
ber of  days,  on  the  date  designated,  this  will  be  charged  to 
his  account  at  the  bank  or,  if  payable  at  his  place  of  business, 
will  be  presented  there  for  payment.  This  varies  from  the  open 
account  method  only  in  the  paying  of  the  account  by  signing  an 
acceptance  at  once  instead  of  a  check  when  due.  The  buyer  is 
furnished  with  a  copy  of  each  acceptance  for  his  records. 

It  makes  no  additional  cost  or  expense  for  the  customer,  be- 
cause he  pays  only  the  amount  shown  on  the  trade  acceptance, 
but  it  gives  us  a  tangible  and  negotiable  item  on  which  we  can 
secure  money  at  the  banks,  instead  of  carrying  an  open  book 
account  that  cannot  be  turned  into  cash  until  it  is  paid.  This 
makes  the  trade  acceptance  of  benefit  to  us  (while  the  special 
terms  are  an  attractive  feature  to  the  customer). 

The  trade  wants  time  on  its  accounts  and  it  is  our  desire  to 
accommodate  our  trade,  even  though  the  authorities  urge  short 
credits. 

If  we  are  willing  to  place  thousands  of  dollars'  worth  of 
merchandise  in  the  hands  of  our  customers  all  over  the  country, 
is  it  not  only  fair  to  ask  that  a  certificate  be  signed  that  the 
account  will  be  paid  according  to  the  terms  of  the  sale?  (This 
is  particularly  true  when  we  are  offering  them  an  extra  dis- 
count. Just  stop  for  a  moment  and  think  how  liberal  our  terms 
are  when  we  allow  I/2  of  1  i^er  cent  discount  from  the  invoice 
on  trade  acceptance.) 

A  large  percentage  of  the  unpleasant  feelings  caused  in  the 
collection  of  accounts  is  over  the  unjust  deduction  of  cash  dis- 
counts, which  is  one  of  the  most  abused  practices  in  the  credit 
business.     Another  is  not  remitting  on  due  date. 

Therefore,  we  adopt  the  trade-acceptance  plan  (and  in  of- 
fering the  special  terms  of  payment  we  believe  we  are  so  liberal 
that  not  a  single  individual  will  object).  We  are  giving  to  the 
small  merchant  and  the  large  merchant  the  same  liberal  credit 
terms,  if  they  sign  the  trade  acceptance. 

We  want  you  to  be  thoroughly  informed  on  the  subject  and 
enthusiastic  for  the  trade  acceptance,  so  that  you  can  educate 
your  customers  to  the  advantage  which  the  plan  offers.     In  or- 


INSTRUCTIONS  TO  SALESMEN  93 

der  to  do  this,  you  yourself  must  thoroughly  believe  in  it.  You 
must  show  the  customer  the  advantages  which  he  will  derive  and 
impress  upon  his  mind  that  the  use  of  the  trade  acceptance  is 
a  step  forward  towai'd  better  business  methods,  and  one  which 
will  become  general  in  use  in  this  country.  Suggest  to  him  that 
he  make  use  of  the  same  method  in  his  business  with  his  cus- 
tomers. 

From  those  customers  who  will  not  agree  to  the  terms  of  a 
**60-days'  trade  acceptance"  we  will  expect  payment  promptly  in 
60  days  after  shipment  from  the  factory.  We  do  not  intend  to 
permit  the  account  to  run  extra  days  on  open  account,  but  will 
send  you  statements  as  heretofore  of  those  open  accounts  which 
are  not  paid  when  due.  Why  should  "slackers"  get  benefits  not 
accorded  our  customers  who  pay  when  the  account  is  due? 

We  want  you  to  see  the  advantages  to  yourself  as  well  as  to 
this  company  in  the  trade-acceptance  plan.  As  a  salesman, 
when  you  secure  the  order  on  terms  of  60  days'  trade  acceptance, 
the  chances  are  99  to  1  that  when  you  go  back  with  the  account 
paid,  you  will  find  the  customer  ready  to  buy  again.  As  stated, 
the  trade  acceptance  will  be  sent  with  the  invoice  or  monthly 
statement  and  it  should  be  promptly  signed  and  returned  to  us. 
We  will  hold  it  until  maturity  and  treat  it  as  a  collection  item 
or  discount  it  at  the  bank,  as  the  conditions  of  our  finance  war- 
rant. Trade  acceptances  should  be  paid  the  same  as  cheeks, 
and  you  will  immediately  find  that  any  difficulty  you  have  for- 
merly experienced  in  the  open  accounts  will  not  continue  with 
such  accounts  if  the  buyer  has  given  trade  acceptances. 

Therefore,  we  again  urge  your  faith  in  this  plan  and  your  ut- 
most effort  to  procure  each  order  subject  to  the  terms,  "trade 
acceptance,  60  days  after  first  of  month  following  shipment." 

We  enclose  for  you  copies  of  3  letters  we  write  to  each  cus- 
tomer after  sending  the  first  trade  acceptance.  We  are  well  as- 
sured that  the  whole  plan,  when  fully  understood  by  you,  will 
be  a  most  welcome  innovation.  If  further  information  is  de- 
sired, let  us  hear  from  you  at  once. 

Very  truly  yours, 

Salesmakager. 

N.B.  A  complete  schedule  of  terms  will  be  sent  you.  Keep 
this  letter  before  you  until  you  become  familiar  with  this  sub- 
ject. 


94  ACCEPTANCES 

Typical  Second  Letter  to  Salesmen. — The  following  is 
an  example  of  a  second  letter  to  salesmen: 

To  Our  Business  Engineers: 

We  are  sending  you  to-day  by  parcel  post  new  order  forms 
effective  January  1st.  Practically  the  only  change  is  in  terms 
of  payment  which  are  now  2  per  cent  for  cash  by  the  10th  of 
the  month  following  shipment  or  trade  acceptance  due  60  days 
after  the  first  of  the  month  (less  i/^  of  1  per  cent).  Regular 
terms  are  net  60  days  from  date  of  shipment. 

This  is  in  accordance  with  our  general  letter  of  December  1st. 

Please  explain  to  each  purchaser  of  our  goods  that  on  and 
after  January  1st  our  terms  will  be  as  above.  The  trade  ac- 
ceptance is  to  be  signed  and  returned  on  receipt  of  invoice  or 
statement  or  within  10  days  from  date.  (We  offer  an  extra  dis- 
count in  consideration  of  his  signing  the  trade  acceptance,  which 
every  one  must  admit  is  very  liberal.) 

If  we  can  secure  your  cooperation,  practically  all  our  goods 
will  be  sold  subject  to  these  terms,  which  will  eliminate  the 
necessity  of  sending  you  statements  under  the  old  account  plan, 
thus  saving  your  time  collecting  when  you  could  be  making  a  sale. 
By  this  method  you  will  do  all  your  work  in  one  operation,  both 
selling  and  collecting,  at  the  time  you  sell  the  goods. 

We  want  you  to  think  the  matter  over  verj'  carefully,  and  we 
believe  you  will  be  as  enthusiastic  over  the  trade  acceptance  as 
we  are. 

Wherever  it  has  been  tried,  it  is  universally  liked;  several  of 
our  competitors  have  adopted  it  with  good  success.  Our  terms 
are  such  as  to  eliminate  all  objection  and  confusion,  provided 
you  explain  it  in  just  the  right  way  to  each  customer. 

Any  further  information  will  be  gladly  furnished  upon  re- 
quest, and  we  expect  to  hear  of  your  success  in  this  matter. 

Yours  very  truly, 

Salesmanager. 

It  should  be  noted  that  this  letter  to  salesmen  should  be 
followed  up  by  other  letters  and  general  data  about  trade 
acceptances.  Talks  and  meetings  to  discuss  the  new  terms 
should  also  be  arranged. 

Preparing  Acceptance  Letters  to  Customers  and  Sales- 
men.— Customers'  letters  should  be  duplicated  in  the  best 


INSTRUCTIONS  TO  SALESMEN  95 

possible  form  on  the  company's  letterheads.  The  name  and 
date  are  filled  in  with  a  carefully  matched  ribbon.  The 
letters  are  signed  with  the  official's  name  or  initials  in  ink 
and  mailed  under  first-class  postage.  As  these  letters  only 
go  out  when  the  first  acceptance  is  sent,  or  until  the  first 
acceptance  is  returned  accepted,  it  is  desirable  to  give  them 
particular  attention. 

Letters  to  salesmen  (on  punched  sheets  for  their  sales- 
men's manuals)  are  carefully  prepared  or  modified  by  the 
salesmanager  and  given  to  each  salesman  (also  to  new  ones, 
as  hired),  together  with  copies  of  all  letters  or  circulars 
sent  to  customers  regarding  trade  acceptances.  The  forms 
shown  in  this  chapter  may  be  modified  according  to  terms, 
requirements,  and  class  of  house,  and  customers  of  any 
firm  using  them. 


CHAPTER  X 

VARIOUS    CHANNELS    FOR    HANDLING    ACCEPTANCES 

Methods  of  Disposing  of  Trade  Acceptances. — The  con- 
sensus of  opinion  seems  clearly  to  indicate  that  the  accepted 
and  proper  market  for  trade  acceptances  in  this  country 
is  the  bank  of  the  drawer  or  acceptor,  usually  that  of  the 
former. 

There  are  many  potential  methods  of  placing,  selling, 
or  discounting  acceptances  besides  placing  them  with  the 
bankers  of  the  maker  or  acceptor,  but  none  seem  so  logical 
or  successful  for  a  free  disposal  of  this  trade  paper.  A 
bankers'  acceptance,  accepted  by  the  banker  of  either  the 
buyer  or  seller,  can  be  sold  freely  in  almost  any  locality 
or  institution  that  deals  in  this  class  of  paper ;  but  with 
a  trade  acceptance  the  path  of  least  resistance  for  the 
drawer  or  owner  of  the  acceptance  is  through  his  own 
banking  connections.  This  is  the  method  usually  employed 
for  the  sale  or  discount,  as  Avell  as  the  collection,  of  trade 
acceptances. 

Federal  Reserve  Member  Banks  and  Others  Which  Dis- 
count Acceptances. — It  might  be  supposed  that  member 
banks  of  the  Federal  Reserve  system  would  be  the  most 
free  to  purchase  trade  acceptances,  for  they  have  the  ready 
facilities  for  rediscount  with  the  Federal  Reserve  Banks. 
However,  banks,  bankers,  and  trust  companies,  irrespective 
of  their  Federal  Reserve  connections,  seem  to  handle  them 
about  equally.  Often  even  the  member  banks  do  not  re- 
discount T.  A.  paper,  but  hold  it  in  their  reserve  until 
it  is  sent  through  for  collection.     The  exceptions  are  usu- 

96 


HANDLING  ACCEPTANCES  97 

ally  the  banks  in  large  centers  which  acquire  numerous 
trade  acceptances  or  acceptances  of  large  denominations 
and  well-known  acceptors,  in  which  case  they  are  more 
apt  to  rediscount  them  or  sell  them  in  the  open  market. 
Banks,  bankers,  and  trust  or  discount  companies  seem  to 
buy  them  indiscriminately,  depending  upon  their  customers 
and  customs. 

Methods  of  Discount  Companies  or  Acceptance  Houses. 
— As  noted  in  Chapter  III,  in  most  of  the  European 
money  centers  institutions  have  sprung  up  known  as 
"acceptance  houses."  These  houses,  which  have  ample 
capital  of  their  own,  do  not  usually  accept  deposits,  but 
confine  their  operations  mostly  to  the  acceptance  of  drafts 
drawn  upon  them  by  their  customers.  In  this  way  many 
concerns  are  able  to  finance  their  business  needs  to  advan- 
tage, for,  lacking  an  established  credit,  it  would  be  impos- 
sible for  them  to  borrow  in  the  open  market  upon  the 
strength  of  their  unsupported  paper.  It  is  the  custom 
of  these  acceptance  houses  to  make  a  careful  investigation 
of  the  business  needs  of  such  concerns,  the  character  and 
ability  of  the  management,  and  all  other  facts  surrounding 
the  risk,  and  if  the  result  of  the  investigation  proves 
satisfactory  they  do  not  hesitate,  for  an  agreed  commission, 
to  accept  for  such  houses.  If  the  acceptance  house  enjoys 
a  high  credit  standing,  there  is  little  difficulty  in  selling 
these  acceptances  at  advantageous  rates. 

Discount  Banks  in  the  United  States. — The  distinctly 
discount  banks  of  this  country  are  of  comparatively  recent 
origin,  although  they  have  been  successful  in  Europe  for 
many  years.  The  pioneer  bank  in  this  country  was  or- 
ganized in  the  spring  of  1918,  with  a  capital  of  $2,000,000 
and  a  surplus  of  $200,000.  Larger  organizations  followed 
and,  no  doubt,  these  will  be  followed  by  other  discount 
houses,  until  their  combined  facilities  are  equal  to  the 
handling  of  this  class  of  paper,  offered  in  the  market  and 


98  ACCEPTANCES 

for  rediscount.  In  some  phases  the  operation  of  these  dis- 
count banks  is  more  or  less  similar  to  the  big  commercial- 
paper  houses  and  trust  companies  throughout  the  country, 
which  are  handling  acceptances  and  similar  classes  of  paper. 
These  discount  houses  are  very  valuable  in  supplementing 
the  facilities  for  the  adequate  and  economical  handling 
of  trade-acceptance  paper,  as  it  is  bound  to  increase 
rapidly. 

It  appears  from  the  present  experience  of  the  discount 
companies  in  the  United  States  in  handling  acceptances, 
that  their  methods  of  profitably  handling  acceptances  are 
not  so  numerous  as  those  of  similar  companies  in  London 
and  other  foreign  money  centers.  In  the  American  dis- 
count market  the  competition  of  trust  companies  and  other 
banks  of  deposit  is  quite  keen  and  the  American  firm  or 
seller  of  acceptances  does  not  hesitate  to  discount  directly 
with  its  own  banks  or  financial  institutions  as  they  seem 
to  do  in  foreign  countries. 

In  London,  for  instance,  the  discount  companies  can, 
when  they  so  desire,  accept  deposits  in  greater  amounts 
than  they  can  in  the  United  States,  and  can  pay  interest 
on  them,  so  that  large  balances  are  left  with  them.  In 
this  country  such  balances  are  deposited  in  the  trust  com- 
panies or  banks  of  deposit,  which  are  accustomed  to  allow 
interest  on  total  daily  balances.  Many  English  companies 
carry  bank  accounts  which  do  not  draw  any  interest  and 
so  they  place  the  surplus  in  acceptances  or  with  the  dis- 
count companies  or  banks  that  will  pay  interest. 

Also,  in  London  many  business  houses  do  not  discount 
their  paper  directly  with  their  banks,  but  prefer  to  do  so 
through  the  discount  companies,  in  order  to  gain  one 
quarter  of  one  per  cent,  which  to  them  appears  more 
important  than  it  does  to  many  American  firms.  In  Lon- 
don the  banks  seem  freer  to  allow  the  discount  companies 
to  make  a  profit  on  their  iDaper  than  in  the  United  States, 


HANDLING  ACCEPTANCES  99 

where  bankers  apparently  prefer  to  make  all  the  profit  and 
discount  possible  on  any  paper  passing  through  their 
hands. 

Therefore,  many  of  those  who  are  best  posted  on  discount 
procedure  in  this  country  seem  to  believe  that  under  present 
conditions  discount  companies  will  not  become  so  numerous 
in  the  United  States  as  they  are  in  England  and  other 
foreign  money  centers,  unless  they  should  be  allowed  to 
accept  deposits,  and  find  it  more  profitable  to  handle  a 
general  line  of  acceptances  and  other  commercial  paper. 
However,  the  business  of  the  companies  established  in  this 
country  seems  to  be  growing  and  its  operation  is  very 
satisfactory.  No  doubt  it  will  continue  to  show  improve- 
ment as  these  matters  become  adjusted  in  the  financial 
world  of  the  United  States,  and  it  will  become  more  free 
in  the  purchase  of  a  general  line  of  acceptances. 

Federal  Reserve  Banks'  Powers  to  Purchase  Accept- 
ances.— The  Federal  Reserve  Act  authorizes  the  Federal 
Reserve  Banks  to  purchase  in  the  open  market  paper  which 
is  satisfactory  to  them,  and  although  they  have  not  availed 
themselves  largely  of  this  privilege,  it  is  one  which  is  very 
important  and  may  have  a  great  effect  in  stabilizing  the 
market  for  acceptances.  The  knowledge  that  this  power 
is  held  by  them  may  have  a  good  effect  on  the  attitude  of 
the  banks  towards  such  paper,  and  should,  in  case  of 
necessity,  have  considerable  weight  in  adjusting  the  rates 
of  discount.  This  purchase  in  the  open  market  by  the 
Federal  Reserve  Banks  may  increase  to  a  considerable  ex- 
tent, depending  upon  circumstances  and  the  ability  and 
attitude  of  the  banks  and  banking  houses  in  their  support 
of  the  prompt  and  economical  handling  of  acceptances. 

Commercial  Paper  Houses  and  Other  Buyers  of  Ac- 
ceptances.— Many  of  the  big  houses  handling  commercial 
paper  and  brokers  of  commercial  paper  are  buying  and 
selling  a  considerable  number  of  acceptances,   especialljr 


100  ACCEPTANCES 

bankers'  acceptances,  because  they  can  readily  resell  these 
in  the  open  market  and  to  banks. 

Many  large  banks  are  also  handling  high-grade  trade 
acceptances,  as  well  as  bankers'  acceptances,  purchased  in 
the  open  market,  in  addition  to  such  paper  as  they  take 
from  their  regular  discount  customers,  when  in  need  of 
such  paper  to  increase  their  liquid  reserves. 

Although  all  of  the  above  facilities  are  working  and  will 
come  into  more  general  play  as  soon  as  trade  acceptances 
are  in  more  general  use,  as  they  are  in  foreign  countries, 
yet  these  facilities  are  at  the  present  time  very  largely 
confined  to  the  handling  of  bankers'  acceptances.  This  is 
for  the  reason  that  most  trade  acceptances  now  are  ac- 
cepted by  smaller  firms  and  the  larger  and  better-rated 
firms  have  not  been  induced  as  yet  to  accept  them  to  any 
great  degree. 

Note-Brokers'  Attitude  toward  Acceptances. — It  does 
not  seem  that  the  brokers  of  commercial  notes  throughout' 
the  country  have  taken  a  decided  stand  on  the  matter  of 
acceptan(|fs  up  to  the  present  time.  Some  seem  to  fear 
that  the  taking  of  acceptances  by  commercial  houses  and 
their  ability  to  discount  or  sell  them  will  hurt  the  stand- 
ing of  the  notes  which  they  put  out  to  the  commercial 
broker,  and  possibly  curtail  their  volume.  That  the  single- 
name  note  is  just  as  necessary  for  the  transactions  which 
it  should  properly  cover  as  the  acceptance  is  for  the  cur- 
rent commercial  transactions  of  the  country,  seems  to  have 
been  proved  in  other  countries  where  both  are  used. 

After  the  buyers  of  commercial  notes  become  accustomed 
to  the  procedure  of  handling  the  trade  acceptance,  they 
probably  will  not  object  to  the  discount  of  trade  accept- 
ances by  firms  w^ho  apply  the  proceeds  properly,  even 
though  they  also  sell  their  notes  to  supply  operating 
finances.  The  statements  of  these  firms  will  show  the 
transactions  in  trade  acceptances  just  as  they  show  any 


HANDLING  ACCEPTANCES  101 

other  asset  or  their  open  accounts,  and  the  money  received 
from  the  discount  of  acceptances  when  it  is  properly  ap- 
plied will  go  to  improve  such  statements.  Those  who  are 
discounting  acceptances  and  also  their  notes  will  probably 
persuade  their  brokers  either  to  be  satisfied  that  they 
should  discount  acceptances  at  the  bank,  or  else  to  buy 
the  trade  acceptances  as  well  as  their  notes. 

It  would  appear  to  be  safer  for  a  firm  to  discount 
acceptances  received  from  its  customers,  who  agree  to  pay 
them  rather  than  to  discount  its  own  notes,  to  cover  its 
turnover  of  goods.  Therefore,  it  is  probable  that  those 
who  have  trade  acceptances  will  discount  them  in  the  best 
market. 

Location  of  Commercial  Discount  Houses  and  Brokers. 
— Large  commercial-paper  houses  are  located  in  the  big 
money  centers,  but  there  are  many  reliable  houses  and 
brokers  throughout  the  country,  and  it  is  not  difficult  for 
any  firm  to  get  in  contact  with  these  should  it  find  the 
local  market  inadequate  to  take  over  its  trade  acceptances 
or  other  commercial  paper  at  a  proper  rate  of  discount. 
However,  it  is  always  preferable  to  give  the  local  banker 
all  the  opportunity  and  benefits  possible  to  handle  a  firm's 
banking  business  to  the  amount  that  he  is  satisfied  to  cover, 
because  he  is  the  logical  one  to  turn  to,  especially  in  case 
of  need,  and  it  is,  therefore,  well  to  favor  him  at  other 
times. 

The  local  banks  may  have  surplus  money  to  invest  in 
liquid  funds,  and  since  acceptances  from  their  locality  in 
the  hands  of  the  commercial-paper  houses  will  be  listed  and 
sent  to  them,  they  will  thus  be  in  a  position  to  buy  this 
liquid  paper,  on  which  are  local  names,  with  which  they 
are  familiar.  This  would  have  no  effect  on  the  legal  limit 
of  their  loans  to  the  acceptor.  This  market  should  expand 
as  more  acceptances  are  circulated  and  the  machinery  for 
handling  them  is  perfected. 


102  ACCEPTANCES 

Banks  That  Buy  Acceptances  in  Large  Money  Centers. 

■ — The  market  for  acceptances,  trade  and  bankers',  is  ex- 
tending very  rapidly  among  the  more  progressive  banks 
with  a  surplus  to  invest,  and  which  wish  to  keep  those  funds 
in  the  most  liquid  form.  These  banks  are  seeking  bankers' 
acceptances  daily  and  are  gradually  taking  up  the  trade 
acceptances.  Firms  having  a  surplus  of  acceptances  which 
they  wish  to  discount  often  get  in  touch  with  banks  of  this 
class  in  the  large  money  centers,  in  order  to  be  in  a  position 
to  discount  acceptances  when  necessary,  outside  of  their 
own  local  financial  institutions.  Large  banks  with  a  sur- 
plus frequently  get  in  touch  with  commercial  firms  of  stand- 
ing which  are  issuing  acceptances  to  their  customers,  in 
order  to  get  a  supply  of  paper  direct,  for  this  paper  has 
proved  of  exceptional  value  as  a  secondary  reserve  because 
of  its  extreme  liquidity  and  availability  for  rediscount  with 
the  Federal  Reserve  Banks,  often  at  a  preferential  rate. 

Reasons  Cited  in  Favor  of  Acceptor's  Bank  Carrying" 
the  Debt. — It  has  been  argued  that  the  buyer's  commu- 
nity should  carry  the  debt  of  the  buyer,  and  this  conten- 
tion, at  least  theoretically,  offers  some  good  ground  for 
argument.  Some  of  the  points  worthy  of  consideration, 
as  to  placing  the  debt  where  the  goods  are  and  where  the 
payment  of  the  debt  will  be  made,  are  as  follows: 

1.  The  acceptor  is  primarily  responsible  for  the  payment 
of  the  acceptance  and  his  credit  standing  would  naturally 
be  best  known  in  his  own  community. 

2.  It  would  relieve  the  seller's  locality  of  the  burden  of 
discounting  his  transaction. 

3.  A  cheaper  rate  or  a  saving  in  collection  or  service 
charges  might  result  from  such  handling. 

4.  It  might  tend  to  give  first  call  to  local  banks  rather 
than  concentrate  loans  in  large  centers. 

Some  practical  cases  to  which  it  might  apply  to  advan- 
tage are: 


HANDLING  ACCEPTANCES  103 

1.  When  the  acceptor  is  better  able  to  discount  the  ac- 
ceptance than  the  seller. 

2.  When  the  banks  in  the  buyer's  locality  are  better  able 
to  carry  the  paper, 

3.  When  the  buyer  offers  to  finance  the  deal  in  order  to 
get  goods  on  credit. 

4.  When  for  some  reason  it  may  not  be  preferable  to  use 
a  banker's  acceptance  accepted  by  the  buyer's  bank. 

Some  Possible  Objections  to  Financing  through  the  Ac- 
ceptor's Bank  Suggested  by  Authorities. — The  plan  of 

financing  through  the  acceptor's  bank  being  unusual  might 
prove  rather  difficult  to  put  through  in  the  case  of  the 
average  buyer  in  routine  trade,  when  conditions  are  not 
as  heretofore  mentioned.  In  some  localities  or  cities,  banks 
would  be  restricted  in  the  amount  of  loans,  because  dis- 
counts, if  made  by  the  acceptor,  would  come  under  the  10 
per  cent  restriction,  on  trade  acceptances  as  well  as  on 
other  paper. 

A  banker  who  is  well  versed  in  the  trade-acceptance 
procedure  and  its  practical  results  says  of  the  plan : 

The  practice  of  discounting'  acceptances  at  the  acceptor's  bank 
may  be  arranged  advantageously  in  some  few  instances,  but 
any  attemjat  to  establish  the  system  on  a  uniform  basis  would 
be  attended  by  innumerable  complications,  and  generally  speak- 
ing would  be  impractical  as  well  as  contrary  to  the  general  idea. 

The  credit  of  the  buyer  at  the  bank  would  be  curtailed  if  he 
endeavored  to  finance  the  trade  acceptance  upon  which  his  name 
appears  as  acceptor.  This  would  undoubtedly  be  true  because 
we  cannot  see  that  the  local  banker  would  be  ordinarily  justified 
in  extending"  a  larger  credit  on  these  acceptances  than  he  would 
upon  single-name  paper  of  the  buyer. 

A  wholesaler  who  is  closely  in  touch  with  the  trade- 
acceptance  situation  of  the  entire  country  says: 

It  is  obvious  that  when  circumstances  have  made  it  necessary 
or  advisable,   acceptances   may  be   discounted  by  the  acceptor 


104  ACCEPTANCES 

at  his  own  bank,  but  I  do  not  know  of  any  one  who  has  made 
a  practice  of  this  method. 

It  should  be  kept  in  mind  by  the  seller  that  to  work 
out  these  plans  it  will  be  necessary  to  have  the  cooperation 
and  acquiescence  of  the  acceptor  so  completely  that  the  sale 
or  the  future  relations  of  buyer  and  seller  will  in  no 
way  be  jeopardized.  Credit  is  given  largely  to  sell  goods 
that  could  not  be  sold  for  cash,  or  to  ** build  up"  a  clientele 
to  whom  the  extension  of  credit  is  attractive.  If  the 
handling  of  the  settlement  of  such  credit  uselessly  preju- 
dices or  interferes  with  sales,  then  such  terms,  whether 
trade  acceptance  or  otherwise,  are  a  handicap  to  the  success 
of  the  firm.  Except  when  sales  are  pushed  to  the  point  of 
over-extension  or  of  insecure  credit,  it  is  distinctly  dis- 
advantageous to  the  selling  firm  to  allow  credit  or  collection 
systems  to  handicap,  as  has  been  said,  the  "only  place  a 
dollar  ever  originates — that  is,  the  sales  department." 

Facilities  for  Extended  Discount  of  Acceptances. — 
When  the  seller  prefers  not  to  discount  an  acceptance  at 
his  own  bank,  he  sometimes  sends  it  to  the  acceptor's  bank, 
or  banks,  in  that  locality,  offering  it  to  them  for  discount 
or  purchase  outright.  Should  they  be  in  funds  and  desire 
to  invest  in  the  acceptor's  paper,  the  seller  might  be  able 
to  sell  it  to  them  at  an  advantageous  rate,  even  though  they 
should  make  a  service  charge  in  addition  to  exchange. 

The  diverse  attitude  of  banks  in  various  districts  toward 
handling  acceptances  may  be  noted  from  letters  herewith 
quoted : 

Trust  Co., 

Philadelphia,  Pa. 

We  oftentimes  get  acceptances  from  other  points  and  of  a 
small  amount  so  it  is  not  convenient  to  discount  them  with  our 
banks  here. 

In  such  instances  the  bank  drawn  on  has  usually  been  willing 
to  discount  the  acceptance,  knowing  their  customers  who  have 
accepted. 


HANDLING  ACCEPTANCES  105 

Could  we  ask  you  to  discount  the  acceptance  enclosed,  de- 
ducting the  discount  and  remitting  us  the  proceeds? 

(Reply) 

We  have  received  your  letter  of  the  13th  instant,  enclosing 

Trade  Acceptance  of  the Co.  for  $ ,  with  the  request 

that  we  discount  same  and  remit  you  proceeds. 

As  we  have  never  made  this  business  a  part  of  our  activities, 
we  regret  very  much  that  we  will  be  unable  to  do  as  you  re- 
quest, and  are,  therefore,  returning  the  acceptance  to  you  here- 
with. 

The  attitude  of  a  bank  in  the  Middle  West  to  whom  an 
acceptance  was  sent  for  purchase  is  indicated  in  the  fol- 
lowing correspondence : 

The  item  sent  in  yours  of  May  13th  is  rather  a  small  item  to 
handle,  and  if  we  handle  it,,  it  will  have  to  be  on  the  basis  of 
a  service  charge  rather  than  a  discount,  for  the  discount  would 
not  amount  to  enough  to  pay  us  to  bother  with  it. 

The  amount  of  the  acceptance  is  $27.23.  I  think  we  might 
take  this  for  you  if  you  care  to  return  it,  at  $26.50,  and  even 
at  that  figure  we  are  not  anxious  for  it.  There  is  no  money 
in  handling  these  small  matters,  unless  we  can  get  pretty  fair 
pay  for  them. 

Copy  of  Letter  from  a  Massachusetts  Trust  Company 

We  return  herewith  trade  acceptance  for  $64.35  signed   by 
Co.     We  would  suggest  tlae  best  plan  would  be  for  you 


to  discount  these  acceptances  at  your  home  bank  and  they  in 
turn  will  forward  them  to  us  for  collection.  We  will  gladly 
collect  these  acceptances  for  you  at  any  time. 

Copy  of  Lettisi  from  a  National  Bank  in  New  York  State 

We  are  enclosing  herewith  trade  acceptances  enclosed  in  your 
favor  of  the  6th  inst.  as  our  Discount  Committee  does  not  feel 
disposed  to  accept  them  owing  to  the  fact  that  the  rating  of 
the  acceptors  is  not  up  to  our  standard. 


106  ACCEPTANCES 

Extract  from  Letter  from  a  Trust  Company  in  New  York 

State 

We  return  herewith  the Printing  Co.'s  notes  amount- 
ing to  $769.23  inasmuch  as  we  are  not  at  the  present  time  mak- 
ing any  loans,  however  we  are  discounting  the  acceptances  you 
sent  us,  subject  to  collection  charges  which  we  will  expect  you 
to  pay. 

From  the  foregoing  data  and  comments  it  appears  de- 
sirable for  each  commercial  firm  or  banker  to  use  the  par- 
ticular kind  of  handling  described  herein  which  seems  most 
advantageous  and  adaptable  to  the  case  in  question. 


CHAPTER  XI 

GENERAL   METHODS    OP    COLLECTING   OR   DISCOUNTING   ACCEPTANCES 
THROUGH    THE   BANKS 

How  Banks  Treat  Trade  Acceptances. — For  those  who 
are  in  the  habit  of  handling  single-name  paper  through 
their  regular  banking  channels,  there  will  be  little  to  learn 
in  the  general  handling  of  trade  acceptances  through  the 
bank.  However,  there  are  small  differences,  which  will  be 
understood  by  the  banker,  and  better  accommodations  are 
obtained  when  they  are  emplo^^ed,  as  well  as  a  simplifica- 
tion of  the  routine  of  handling  trade  acceptances.  These 
phases  of  the  subject  will  be  treated  in  this  chapter. 

A  banker's  point  of  view  is  presented  in  the  following 
statement  by  the  former  secretary  of  a  division  of  the 
American  Bankers  Association,  who  is  now  an  official  of 
a  discount  corporation  and  who  is  closely  in  touch  with 
this  subject: 

The  fact  that  trade  acceptances  are  superior  to  open  book 
accounts  does  not  mean  that  they  can  be  negotiated  in  unlim- 
ited volume  by  the  holder.  Where  the  acceptors  are  names  un- 
known to  the  banker,  he,  the  banker,  will  depend  entirely  upon 
the  offerer,  and  will  limit  the  volume  accordingly, — just  the  same 
as  if  application  were  made  for  a  regular  loan.  The  use  of  the 
trade  aecei^tance  will  make  collections  more  certain,  but  will  not 
reduce  the  responsibility  of  the  credit  man  either  in  the  bank 
or  in  the  business  house. 

When  the  drawer  is  known  to  be  conservative  and  care- 
ful with  his  credits,  his  trade  acceptances  should  have  a 
better  standing  with  the  banks  than  notes  of  buyers,  be- 

107 


108  ACCEPTANCES 

cause  customers'  notes  are  not  usually  given  for  current 
accounts,  whereas  the  trade  acceptance  must  be  for  cur- 
rent obligations,  as  stated  on  its  face.  Since  the  acceptor 
is  the  party  who  is  primarily  responsible  on  the  paper  and 
is  the  one  to  whom  the  bank  looks  primarily  for  payment, 
these  considerations  will  probably  influence  most  banks  in 
taking  acceptance  paper  in  reasonably  large  quantities. 
For  it  has  been  found  that  where  the  credits  represented 
have  been  conservatively  assumed,  this  obligation  will  be 
paid  when  due,  and  will  not  be  subject  to  renewal,  which 
is  often  the  case  with  single-name  paper  of  the  sellers. 
Whereas  single-name  paper  is  based  upon  the  accounts  re- 
ceivable of  the  seller,  or  borrower,  and  it  is  well  known 
that  bankers  usually  discount  such  collateral  at  least  50 
per  cent  in  making  their  loans,  it  is  possible,  after  trade 
acceptances  are  better  known  to  the  banks  and  especially 
after  experience  shows  that  they  are  paid  promptly  by 
their  borrower's  customers,  that  a  larger  line  of  loans  will 
be  made  to  borrowers  on  trade  acceptances  than  would 
be  made  on  single-name  notes  based  upon  open  accounts. 
However,  at  first,  when  discounting  trade  acceptances,  the 
borrower  should  be  conservative  and  not  ask  the  bank  to 
depart  greatly  from  its  regular  loan  rules  on  one-name 
paper  based  upon  accounts  receivable. 

A  prominent  banker  recently  expressed  himself  as  fol- 
lows : 

Many  of  our  customers  have  the  idea  that  we  will  be  glad  to 
have  any  acceptances  they  bring  us,  regardless  of  the  standing 
of  the  acceptor.  If  this  were  so,  it  would  simply  mean  that  the 
seller  of  goods  could  obtain  unlimited  credit  without  regard  to 
the  security  behind  the  loans.  There  is  absolutely  no  reason  for 
granting  a  customer  a  larger  line  of  credit  on  acceptances  than 
on  single-name  paper  if  the  second  name  on  the  acceptance  does 
not  add  to  the  security  behind  the  instrument.  We  endeavor  to 
impress  upon  each  of  our  customers  who  present  acceptances 
for  discount  the  fact  that  the  trade  acceptance  should  only  be 


METHODS  OF  DISCOUNTING  109 

used  where  an  open  account  would  be  extended  and  that  to 
create  other  than  a  prime  trade  acceptance,  signed  by  both  a 
buyer  and  seller  of  responsibility,  is  to  injure  the  trade-accept- 
ance movement  and  ultimately  to  destroy  the  credit  of  the  seller 
himself. 

Rate  of  Discount  on  Trade  Acceptances. — Conserva- 
tism -will  also  prevail  in  regard  to  the  rate  of  discount  on 
the  acceptances.  Although,  in  normal  times,  the  Federal 
Reserve  Banks  often  give  a  preferential  of  up  to  one-half 
of  one  per  cent  to  the  member  banks,  it  is  not  a  general 
practice  for  the  member  banks  to  pass  on  this  reduction 
and  discount  to  their  customers  on  trade  acceptances. 

It  seems  to  be  conceded  that  it  takes  more  clerical  and 
detail  work  to  put  acceptances  through  the  banks  for  col- 
lection than  checks,  which  are  merely  put  through  and 
paid  at  once  on  presentation  by  the  banks  draAvn  upon. 
But  the  acceptance  has  to  be  recorded  by  the  banks  through 
whose  hands  it  passes,  and  held  by  the  bank  collecting  it 
until  the  due  date,  when  it  is  to  be  paid  at  the  bank  of  the 
acceptor  or  other  place  of  payment. 

The  action  of  the  New  York  Federal  Reserve  Bank  in 
eliminating  the  collection  charge  of  one-fortieth  of  one 
per  cent  for  collecting  acceptance  paper  at  out-of-town 
points  has  tended  to  make  easier  the  work  of  the  accept- 
ance dealer  in  New  York,  and  is  conducive  to  a  freer 
handling  of  acceptances. 

Service  Charges  on  Acceptances. — In  addition  to  the 
discount  rate,  there  is,  of  course,  the  exchange  rate  and 
a  possible  service  charge  on  certain  acceptances.  The 
bank  points  to  the  fact  that  the  extra  work  that  it  does 
in  handling  the  acceptances  should  relieve  the  borrower 
from  that  much  work  in  his  own  bookkeeping  and  collec- 
tion departments,  and,  therefore,  any  extra  work  that  the 
bank  does  should  be  paid  for  through  a  proper  service 
charge  by   the   borrower.     Varying  small   differences  in 


110 


ACCEPTANCES 


charges  will  be  made  by  banks  until  the  charges  become 
standardized  and  a  general  open  market  is  established  for 
acceptances,  as  in  Europe,  where  the  charges  and  discount 
rate  are  fixed  by  custom  and  supply  and  demand. 

It  is  reported  that  the  Federal  Reserve  Board  contem- 
plates a  general  codification  of  discount  rates  to  a  schedule 
to  cover  the  following: 

Paper  maturing  within  15  days,  including  collateral  notes. 
Paper  maturing  within  16  to  60  days. 
Paper  maturing  within  61  to  90  days. 
Trade  acceptances  maturing  within  60  days. 
Trade  acceptances  maturing  within  90  days. 
Bankers'  acceptances  maturing  within  90  days. 
Commodity  paper  maturing  within  90  days. 
Agricultural  paper  maturing  within  90  to  180  days. 

It  is  worth  while  for  a  large  borrower  or  lender  to  keep 
in  mind  the  difference  in  cost  between  borrowing  money 
on  interest  and  by  discount,  which  difference  is  accounted 
for  when  it  is  understood  that  the  interest  is  figured  each 
month  or  period,  while  discount  is  figured  at  the  time  of 
the  loan.     The  following  table  illustrates  this  point: 


Interest  cost 

Discount  cost 

1  per 

cent 

per  annum          1.010101 

per 

cent 

per 

annum 

2    " 

)} 

2.040816 

3    " 

}) 

3.092783 

4    " 

}) 

4.166666 

5    » 

f) 

5.263157 

6    " 

>• 

'               6.382968 

7     " 

f} 

'               7.526881 

8     " 

>5 

8.695652 

9     " 

i> 

9.890109 

.0    " 

)) 

'             11.111111 

?> 

Trade  Acceptances  Which  Are  Eligible  for  Discounting 
through  Banks. — As  in  the  case  of  single-name  notes, 
trade  acceptances  which  differ  in  style  or  wording  may 


METHODS  OF  DISCOUNTING  111 

be  discounted  by  banks,  trust  companies,  or  banking 
houses,  at  their  discretion.  However,  to  make  acceptances 
eligible  for  rediscounting  by  Federal  Reserve  Banks,  they 
must  conform  in  form,  wording,  maturity,  etc.,  to  the  rules 
of  the  Federal  Reserve  Board,  which  make  trade  accept- 
ances eligible  for  rediscount  for  member  banks  by  the  Re- 
serve Banks,  or  for  "purchase  by  them  in  the  op^n  market. 

It  will  not  be  necessary  to  go  into  details  in  this  chap- 
ter about  the  form  and  wording  of  trade  acceptances,  as 
they  have  been  treated  quite  fully  in  other  chapters  which 
made  plain  that  the  Federal  Reserve  Board  has  not  out- 
lined an  exact  form  of  acceptance,  although  it  has  made 
it  necessary  to  have  certain  w^ording,  or  the  equivalent 
thereof,  incorporated  in  the  acceptance  to  make  it  eligible 
for  discount  by  a  Federal  Reserve  Bank.  It  has  approved 
several  different  forms,  three  of  which  are  reproduced  in 
Chapter  II. 

Taking  it  for  granted  that  the  details  of  the  acceptance, 
in  make-up,  signing,  accepting,  etc.,  are  in  accordance  with 
the  rulings,  which  have  been  carefully  observed,  and  that 
the  acceptance  will  be  eligible  for  rediscount  by  the  Fed- 
eral Reserve  Banks,  we  will  examine  how  best  to  handle 
the  trade  acceptance  in  discounting  or  collecting  through 
the  banks  or  other  medium. 

Correct  Plans  and  Time  for  Discounting  Trade  Ac- 
ceptances.— As  stated,  a  trade  acceptance  may  be  drawn 
for  any  length  of  time,  the  same  as  a  note.  A  banker  will 
discount  only  those  that  look  safe  to  him,  as  he  would 
with  notes.  He  can  discount  a  mercantile  acceptance,  even 
though  it  should  still  have  over  90  days  to  run  before  ma- 
turity. However,  a  member  bank  cannot  rediscount  wdth 
a  Federal  Reserve  Bank  for  a  term  of  more  than  90  days 
from  maturity  for  a  common  merchandise  trade  accept- 
ance, or  for  more  than  6  months  on  one  representing  the 
sale  of  livestock  or  farm  products. 


112  ACCEPTANCES 

Although  trade  acceptances  can  be  discounted  at  a  bank 
singly,  it  is  usually  preferable  to  gather  them  up  to  a  round 
sum,  according  to  their  size  and  the  size  of  the  business 
account,  in  order  to  make  arrangements  with  the  bank  at 
one  time  for  all  so  offered. 

When  a  bank  becomes  accustomed  to  handling  trade  ac- 
ceptances for  a  borrower,  a  regular  arrangement  and  rate 
can  be  made,  the  same  as  on  a  line  of  credit. 

If  the  full  benefit  is  to  be  derived  from  trade  accept- 
ances, it  is  obvious  that  they  must  be  returned  promptly 
by  the  acceptor,  since  to  get  the  least  cost  for  discount,  it 
is  necessary  to  discount  them  with  as  long  a  period  to  run 
as  the  bank  Avill  accept.  When  there  are  exchange  or 
service  charges,  even  though  they  be  small,  the  greater 
length  of  time  these  charges  can  be  spread  over  will  mini- 
mize the  cost  of  the  loan  per  dollar.  It  is,  therefore,  de- 
sirable to  discount  the  trade  acceptances  with  longer  rather 
than  the  shorter  periods  to  run,  as  the  discount  or  interest 
is,  of  course,  charged  only  for  the  actual  number  of  days 
for  which  the  money  is  loaned. 

Full  details  of  recording  the  acceptances  for  discount 
or  collection  are  treated  in  Chapter  VII.  The  procedure 
of  the  bank  is  treated  in  Chapter  XVI  (since  it  does  not 
particularly  concern  the  seller),  and  the  bookkeeping  meth- 
ods for  the  seller  are  handled  in  Chapter  VIII,  while  plans 
of  discounting  through  the  regular  banking  and  other  fa- 
cilities, either  now,  or  in  the  future  when  the  outlets  are 
better  developed,  is  discussed  in  Chapter  X. 

Methods  of  Collecting  Trade  Acceptances  by  the  Seller 
through  His  Bank. — Collection  is  usually  made  through 
the  drawer's  (seller's)  banking*  channels,  and  the  accept- 
ance is  usually  payable  through  the  banking  connections 
of  the  acceptor.  This  is  similar  to  the  usual  bills  receiv- 
able or  payable  transaction. 

It  will  be  understood  that  the  acceptance,  being  made 


METHODS  OF  DISCOUNTING  113 

payable  on  a  certain  date,  has  to  go  through  as  a  collection 
item  and  cannot  go  through  as  a  check,  which  is  paid  im- 
mediately on  presentation  at  the  bank  on  which  it  is  drawn. 

Occasionally  banks  treat  the  collection  of  acceptances 
similarly  to  checks;  that  is,  they  credit  them  at  once  on 
receipt  for  collection,  and  handle  them  as  some  banks  do 
checks,  allowing  the  depositor  to  draw  against  them  at 
once  and  waiving  any  collection  charges  on  the  item,  al- 
though charging  interest  until  collected.  This,  of  course, 
is  entirely  a  matter  for  the  bank's  decision,  and  is  some- 
what similar  to  Canadian  procedure,  but  the  plan  is  not 
generally  used  in  this  country. 

The  usual  method  is  for  the  bank  making  the  collection 
to  handle  it  as  a  collection  item  and  to  send  it  through  to 
the  paying  bank,  which  in  turn  remits  the  funds  to  the 
first  bank,  which,  when  so  received,  credits  them,  less 
collection  charges,  to  the  account  of  the  one  from  whom 
the  acceptance  has  been  received  for  collection. 

Right  of  Banks  to  Charge  Trade  Acceptances  to  the 
Accounts  of  Their  Customers. — Section  87  of  the  Uniform 
Negotiable  Instruments  Law  provides  that:  "Where  the 
instrument  is  made  payable  at  a  bank,  it  is  equivalent  to 
an  order  to  the  bank  to  pay  the  same  for  the  account  of 
the  principal  debtor  thereon." 

Any  bank  accordingly  has  the  right  in  all  but  six  states 
to  charge  trade  acceptances  to  the  accounts  of  the  accept- 
ors where  the  acceptors  have  specified  on  the  acceptances 
that  they  are  payable  at  the  particular  bank.  The  ex- 
ceptions are  the  following:  Georgia,  Illinois,  Kansas,  Min- 
nesota, Nebraska,  and  South  Dakota.^ 


^  Georgia  has  not  passed  the  uniform  Negotiable  Instruments  Law. 
Illinois  omitted  Section  87  of  the  Negotiable  Instruments  Law. 
Kansas  repealed  Section  87  of  the  Negotiable  Instruments  Law. 
Minnesota  inserted  the  word  "not"  in  Section  87.  Nebraska  omitted 
Section  87  from  the  Negotiable  Instruments  Law.  South  Dakota 
omitted  Section  87  from  the  Negotiable  Instruments  Law. 


114  ACCEPTANCES 

It  is  probable,  therefore,  that  bankers  in  states  other 
than  these  six  will  generally  adopt  the  procedure  of  pay- 
ing the  acceptance  on  presentation  on  or  after  due  date, 
when  the  proper  signature  of  the  depositor  is  thereon,  pro- 
viding the  depositor  has  sufficient  funds  in  the  bank  to 
meet  the  acceptance.  When  the  acceptance  contains  a 
clause  worded  similarly  to  the  special  clause  in  the  Stand- 
ard Form  (Figure  3),  approved  by  the  Federal  Reserve 
Board  on  this  point  in  the  official  BiiUetin  of  July,  1918, 
it  will  not  be  necessary  in  any  state  to  notify  the  acceptor 
or  the  bank  in  any  way  before  the  presentation  of  the  ac- 
ceptance. The  opinion  of  the  counsel  for  the  American 
Bankers  Association,  as  well  as  the  opinion  of  the  Board, 
seem  to  confirm  this  procedure. 

Individual  Methods  of  Collection. — Although  it  is  seldom 
desirable  to  depart  from  the  regular  routine  in  financial 
matters,  some  drawers  of  acceptances  hold  the  acceptance 
until  the  due  date  is  near,  and  then  send  it  directly,  with 
a  letter  or  notice,  to  the  bank  of  the  acceptor,  asking  it  to 
remit  to  them  directly  in  bank  funds,  less  exchange 
charges.  It  is  questionable  whether  this  method  can  be 
used  except  with  a  limited  number  of  customers.  This  is 
also  true  to  a  degree  in  discounting  acceptances  in  the 
buyer's  locality  and  was  discussed  in  the  preceding  chap- 
ter. 

Procedure  and  Rates  in  the  Acceptance  Market. — The 
rates  in  the  open  market  for  acceptances  will,  no  doubt, 
be  adjusted  as  they  are  in  Europe  on  the  basis  of  supply 
and  demand,  rather  than  on  the  money  market.  No  set 
rates  are  now  standard  in  this  matter,  and  the  general 
money  market,  together  with  class  of  the  acceptance,  the 
name  of  the  acceptor,  and  the  indorsers,  will  govern.  It 
is  not  possible,  that  merely  because  a  piece  of  paper  is 
marked  "acceptance,"  it  will  command  a  rate  or  a  market 
not  warranted  by  the  class  of  financial  standing  of  those 


METHODS  OF  DISCOUNTING  115 

who  will  have  to  pay  the  paper  when  it  becomes  due.  It 
is  as  true  of  acceptances  as  of  other  commercial  paper,  that 
the  higher  the  standing  of  the  acceptor  and  the  indorsers, 
the  better  the  market  and  rate  it  can  command. 

The  procedure  in  the  handling  of  trade  acceptances  in 
the  open  market  will,  of  course,  vary  according  to  con- 
ditions. When  the  acceptance  is  sold  in  the  open  market, 
naturally  a  discount  rate  (or  interest)  is  charged  for  the 
time  it  has  to  run.  When  conditions  make  it  necessary, 
exchange  charges  are  also  added.  Under  special  condi- 
tions, such  as  difficulty  of  collection,  size  of  the  acceptance, 
and  other  contributory  causes,  a  service  charge  for  handling 
is  sometimes  necessary.  These  charges  will  become  more 
and  more  standardized,  even  though  they  may  be  a  trifle 
high  at  inception. 

It  seems  apparent,  therefore,  that  each  user  of  accept- 
ances should  carefully  and  patiently  study  the  best  meth- 
ods of  handling  his  acceptances  until  he  decides  upon  the 
most  satisfactory  plan  for  his  conditions  and  locality,  and 
until  the  general  methods  and  rates  become  more  stand- 
ardized, as  they  undoubtedly  will  be  by  wider  usage. 


CHAPTER  XII 

SHOULD   INDUCEMENTS    BE   GIVEN    TO   BUYERS   TO  "ACCEPT"? 

Three  Plans  for  Introducing  the  Trade  Acceptance. — 

The  seller  asks, ' '  Why  give  an  inducement  to  a  man  to  pay 
his  bills  when  they  are  due  ? ' '  Some  buyers  reply,  ' '  Why 
should  the  buyer  'accept'  without  an  inducement,  unless  he 
is  forced  to  do  so,  either  by  the  unalterable  terms  of  the 
seller  (or  a  combination  of  sellers  in  a  certain  line),  or 
by  custom,  as  is  the  case  in  Canada  and  Europe?" 

As  usual,  to  get  results,  the  practical,  not  the  theoretical 
side  of  the  matter,  must  be  considered.  One  phase  should 
determine  the  final  analysis  and  procedure,  that  is,  what 
plan  will  most  satisfactorily  produce  results  for  the  seller, 
as  well  as  for  the  buyer,  and  be  in  accordance  ivith  proper 
usage  and  ethics. 

We  should,  then,  consider  the  feasible  means  and  the 
cost  of  various  plans  of  settlement  by  acceptance,  keeping 
clearly  before  us  the  fact  that  this  does  not  concern  pur- 
chases for  spot  cash  or,  usually,  cash  within  30  days.  The 
general  plans,  as  roughly  stated  in  previous  chapters,  are: 

Plan  1. — Under  which  the  buyer  is  obliged  to  accept  to 
get  goods  on  credit. 

Plan  2. — Under  which  the  buyer  has  his  free  choice 
whether  to  accept  or  not,  with  no  inducements — simply 
explanations  and  request  to  do  so. 

Plan  3. — Under  which  the  buyer  has  his  choice,  but  is 
offered  a  direct  benefit,  over  open-account  credit,  for 
accepting. 

Plan  1  is  obviously  the  most  simple  and  satisfactory  to 

116 


INDUCEMENTS  TO  BUYERS  117 

the  seller,  since  it  results  in  his  getting  acceptances  on  all 
merchandise  credit  business  and  all  ensuing  benefits  accrue 
to  him  without  cost.  It  is  the  one  advocated  by  the  most 
conservative  bankers  and  business  men. 

Investigation  as  to  whether  it  is  feasible  for  the  ma- 
jority of  sellers  to  force  the  issue  develops  the  fact  that  it 
it  is  rather  rare  (except  in  case  of  a  monopoly  or  close 
combination  of  a  trade  with  uniform  terms)  for  a  buyer 
to  be  obliged  to  acquiesce  to  fixed  terms  and  be  unable  to 
get  the  goods  elsewhere  or  do  without  them. 

If  the  buyer  can  get  the  goods  elsewhere  and  they  are 
equally  satisfactory,  and  if  he  is  not  "sold"  on  the  trade- 
acceptance  terms,  the  seller  has  sometimes  been  obliged  to- 
modify  his  terms  or  lose  some  of  his  customers  to  other 
sellers  who  do  not  make  the  same  terms  obligatory.  It 
is  also  found  that  it  sometimes  makes  it  more  difficult  to 
get  new  customers  against  competition. 

Plan  1  seems  to  be  adaptable  to  and  desirable  for  strong 
firms  well  intrenched  in  their  customers'  esteem  and  hav- 
ing a  line  with  which  they  can  get  new  trade  on  such  terms. 

Plan  2,  making  acceptance  purely  optional  and  without 
inducements,  has  been  more  or  less  successfully  carried 
out  by  a  number  of  old  firms  whose  business  is  done  with 
regular  and  unusually  well-informed  customers,  and  who 
obtain  new  customers  through  the  prestige  of  their  goods 
or  reputation. 

In  the  case  of  firms  whose  customers  are  not  closely  tied 
to  them,  or  are  only  occasional  and  not  regular,  and  who 
work  under  close  competition  for  old  or  new  trade,  the 
mere  explanation  or  request  of  Plan  2  does  not  seem  to 
produce  results  in  getting  payment  by  trade  acceptance  in 
even  50  per  cent  of  the  cases.  Plan  2  is  often  favored  by 
the  banks  and  credit  men,  but  has  been  more  or  less  of  a 
disappointment  when  the  percentage  of  acceptances  ac- 
cepted is  considered. 


118  ACCEPTANCES 

Careful  investigation  among  users  of  acceptances  shows 
that  the  average  business,  seeking  to  close  a  majority  of 
its  credits  by  trade  acceptance  with  Plan  No.  2,  succeeds, 
under  present  competitive  cwiditions,  very  slowly,  and  al- 
though this  is  a  regrettable  condition,  it  will  probably  con- 
tinue to  be  the  case  until  the  trade  acceptance  is  much 
more  firmly  established  in  merchandise  credit  settlements 
than  it  is  now. 

Plan  3.  In  the  present  undeveloped  stage  of  acceptance 
practice  in  this  country  this  plan  has  proven  the  most 
successful  for  the  average  business  to  get  a  good  percentage 
of  its  credit  business  closed  by  trade  acceptances  within 
a  reasonable  period  of  time.  However,  it  necessitates 
adopting  the  principle  of  giving  preferences  for  payment 
by  acceptance,  a  practice  with  which  some  authorities  dis- 
agree. 

National  Investigations  Indicate  Methods  Successfully 
Used. — Several  nation-wide  investigations  among  the  users 
of  acceptances  in  America  have  shown  that  a  considerable 
number,  as  well  as  those  who  receive  the  highest  percent- 
age of  acceptances  back  from  their  customers,  use  induce- 
ments, such  as  extra  time  or  percentage  of  discount  or 
both,  to  obtain  trade  acceptances  from  their  credit  cus- 
tomers. 

However,  to  carry  out  Plan  3  successfully,  several  im- 
portant ijoints  must  be  carefully  considered  and  analyzed. 
First,  we  should  consider  what  are  the  benefits  it  is  claimed 
both  buyer  and  seller  will  receive  through  the  use  of  ac- 
ceptances, as  briefly  summed  up  here.  Second,  what  in- 
ducements, if  any,  and  how  great,  can  the  seller  afford 
to  offer  for  acceptance?  Third,  what  kind  of  benefit, 
and  how  much,  must  be  offered  the  buyer  to  induce  him 
to  depart  from  his  usual  open-account  credits  and  "ac- 
cept"? 

It  has  been  found  necessary  to  get  a  nice  balance  be- 


INDUCEMENTS  TO  BUYERS  119 

tween  the  needs  of  both  buyer  and  seller  to  assure  equity 
to  them  and  success  to  the  plan.  To  do  this  we  should 
first  examine  on  what  grounds  or  basis  of  saving  a  seller 
could  figure,  in  order  to  offset  a  special  inducement  for  a 
buyer  to  sign  the  acceptance;  and  second,  we  should  con- 
sider the  buyer's  benefits.  These  phases  are  treated  in 
detail  in  the  third  section  of  this  volume  but  will  be 
summarized  here. 

Advantages  to  the  Seller  and  Buyer  by  Use  of  Accept- 
ances.— Advantages  to  the  seller  are  claimed  because  the  ac- 
ceptance forms  an  accurate  basis  to  figure  his  income 
upon;  promotes  better  understanding  with  creditors;  re- 
lieves salesmen  from  being  collectors;  increases  the  effi- 
ciency of  the  sales  call;  cleans  up  all  accounts  monthly: 
saves  collection-department  expense ;  causes  the  bank  to 
handle  details;  minimizes  interest  on  borrowed  money; 
makes  possible  the  discount  of  100  per  cent  of  good  receiv- 
ables; extends  the  available  lines  of  credit;  extends  the 
field  of  discount;  helps  to  supply  the  greater  amount  of 
working  capital  now  necessary  to  do  the  same  volume  of 
business  as  formerly ;  makes  possible  a  smaller  financial 
operating  cost  for  the  seller  through  the  need  of  less  fixed 
capital;  obviates  high  expense  where  accounts  have  been 
hypothecated;  creates  liquid  reserve  in  case  of  need  in 
contrast  to  "frozen"  open  accounts;  minimizes  friction 
and  loss  with  slow-pay  accounts  by  automatically  making 
them  pay  as  per  terms;  improves  the  average  firm's  rela- 
tions with  its  customers;  relieves  the  seller  from  the  neces- 
sity of  withholding  from  active  use  a  "margin  of  safety" 
in  cash  to  cover  contingent  losses ;  after  acceptance,  puts 
upon  the  buj^er  the  burden  of  proving  accepted  charge  in- 
correct; allows  the  seller  to  extend  larger  credits  on  the 
same  working  capital:  may  reduce  discount  charges  at 
the  bank ;  reduces  unearned  discounts  taken  by  the  buyer ; 
reduces  the  time  asked  for,  or  taken,  over  regular  terms; 


120  ACCEPTANCES 

reduces  unfair  cancellations  and  return  of  goods ;  increases 
the  percentage  of  those  discounting  for  cash ;  and  it  facili- 
tates payment  by  the  buyer  as  originally  agreed. 

Some  reasons  a  buyer  has  for  "accepting"  are  that  he 
gets  reflected  benefits  from  those  of  the  seller ;  is  inculcated 
with  better  collecting  as  well  as  paying  habits ;  saves  in  de- 
tail and  bookkeeping  work;  is  prompted  to  business-like 
methods  of  doing  business ;  gets  inducements,  when  offered, 
for  signing  the  acceptance. 

Grounds  a  Buyer  Ha^  for  Asking  Inducements. — 
Equally  important,  in  the  final  analysis,  are  the  reasons 
the  buyer  may  advance  for  asking  that  a  special  induce- 
ment be  offered  to  him  in  exchange  for  his  voluntary  ac- 
ceptance. Some  of  these  reasons  advanced  by  buyers  are 
as  follows:  He  can  buy  elsewhere  on  "elastic"  open  ac- 
count; he  knows  of  the  seller's  benefits  and  expects  to 
share  them  for  abandoning  his  old  easy  credit  customs  and 
"accepting";  he  does  not  understand  the  trade  acceptance 
and  doesn't  want  to  unless  there  is  "something  in  it"  for 
him;  he  cloes  not  have  to  sign,  if  he  does  not  want  to; 
and  he  asks,  if  the  cash  buyer  is  entitled  to  a  discount' 
for  paying  cash,  is  he  not  entitled  to  ask  for  a  benefit  for 
paying  by  the  next  best  method?  When  a  buyer  accepts 
and  agrees  to  pay  when  due,  he  claims  the  right  to  be  in 
class  preferred  to  that  of  Tom,  Dick,  and  Harry,  who  buy 
on  credit  and  abuse  the  understood  terms  by  paying  when 
they  please. 

Consensus  of  Opinion  for  and  against  Inducements. — 
National  investigation  shows  that  bankers  and  credit  men 
are  about  60  to  70  per  cent  against  inducement.  Inves- 
tigation shows  that  among  manufacturers  and  merchants 
50  per  cent  are  for  inducements;  that  salesmanagers 
and  salesmen  believe  inducements  necessary  to  win  and 
retain  their  customers  and  sales,  and  that  this  should  be 
figured  in  the  price;  and  that  most  practical  advertising 


INDUCEMENTS  TO  BUYERS  121 

men  favor  an  inducement  to  the  buyer  until  he  ''gets  the 
habit." 

Mr.  Wilson,  the  New  York  Agent  for  the  Union  Bank  of 
Canada,  says: 

I  am  utterly  opposed  to  the  idea  of  offering  any  special 
inducements  to  the  retailer  to  give  acceptances.  It  is  his  duty 
to  do  this.  The  wholesaler  gives  the  retailer  credit.  The  retailer 
should  acknowledge  the  debt.  It  would  be  an  entirely  pernicious 
practice  to  encourage  or  bribe  the  retailer  in  the  form  of  a 
commission  or  in  any  other  way. 

President  Cady  of  the  Guardian  Trust  and  Savings  Bank, 
Toledo,  says: 

Many  manufacturers  and  wholesalers  are  allowing  "Acceptance 
Discounts,"  which  permit  the  taking  of  discounts  at  the  time  of 
"Acceptance"  and  establishing  acceptor  on  much  the  same  basis 
as  the  purchaser  for  cash. 

The  president  of  a  large  manufacturing  and  jobbing 
concern  made  an  investigation  of  trade  acceptances  among 
23  firms  who  used  them;  in  an  article  in  a  leading  busi- 
ness magazine,  he  said: 

We  now  have  little  difficulty  in  inducing  our  customers  to 
"accept,"  particularly  as  we  give  a  special  trade-acceptance  dis- 
count to  them. 

My  own  thought  on  this  subject  is  that  one  of  the  important 
points  in  favor  of  the  trade  acceptance  from  the  wholesaler's 
point  of  view  is  the  ability  to  discount  in  order  to  secure  im- 
mediately the  money  invested  in  the  merchandise.  Our  regular 
terms  on  open  accounts  are  2/10  or  net  60.  We  are  allowing 
1/2  of  1  per  cent  for  a  60-day  acceptance,  on  the  theory  that 
this  additional  discount  is  made  up  to  us  by  the  fact  that  on 
open  accounts  we  pay  2  per  cent  for  our  money  in  10  days. 

The  giving  of  special  acceptance  discount  has  been  more 
effective  in  producing  results  for  us  than  all  arguments  com- 
bined. We  consider  that  the  time  buyer  who  refuses  to  make  an 
outright  saving  when  he  can  so  readily  do  it  invites  inquiry  into 
his  good  faith. 


122  ACCEPTANCES 

The  Trade  Acceptance  Committee  of  the  Massachusetts 
Bankers'  Association,  in  a  report  on  the  subject,  says : 

Trade  acceptances  may  enable  the  buyer  to  purchase  on  better 
terms. 

It  is  not  expected  that  open  accounts  for  merchandise  sales 
will  be  entirely  eliminated,  and  many  sellers  will  find  it  advan- 
tageous to  offer  special  trade-acceptance  terms.  For  instance, 
the  regular  terms  have  been,  say,  2  per  cent  10  days,  net  60  days. 
These  could  be  modified  either  by  offering  special  discounts  for 
trade  acceptance  or  by  apparently  extending  the  time  as  follows : 
2  per  cent  10  days,  1  per  cent  60-day  trade  acceptance,  net  60- 
day  open  account.  Or,  2  per  cent  10  days,  net  60-day  open 
account,  net  90-day  trade  acceptance. 

The  seller  would  no  doubt  be  glad  to  make  such  arrangements 
in  many  cases,  and  the  buyer  would  receive  a  distinctly  profitable 
advantage.  The  extension  of  time  is  not  as  radical  as  might 
appear  because  most  buyers  who  do  not  take  their  cash  dis- 
counts often  delay  payment  for  some  time  after  the  due  date 
of  the  open  account. 

At  a  national  conference  on  the  subject,  a  man  who  has 
been  especially  practical  and  successful  with  trade  accept- 
ances covered  the  point  as  follows: 

I  will  offer  a  brief  answer  to  the  question,  "Should  special 
inducements  be  offered  to  the  acceptor?" 

This  question  is  debatable.  It  is  contended  that  the  cupidity 
of  the  buyer  should  not  be  appealed  to,  but,  on  the  other  hand, 
it  must  not  be  forgotten  that  we  face  real  difficulties  in  bringing 
about  reform  in  long-established  business  methods  and  that  the 
matter  must  be  handled  in  a  practical  way. 

In  recognition  of  the  superiority  of  the  trade  acceptance  as  a 
credit  instrument,  the  Federal  Reserve  Banks  will  often  take 
this  paper  from  member  banks  at  a  rate  of  I/2  of  1  per  cent 
less  than  the  ruling  rate  for  other  commercial  paper  of  the  same 
character. 

It  is  not  probable  that  this  preferential  rate  was  provided  in 
order  that  the  banks  or  the  seller  might  make  an  extra  profit, 
but  rather  that  the  proper  part  of  the  inducement  be  passed 
along  to  the  buyer  in  order  to  encourage  the  production  of  a 
greater  volume  of  eligible  commercial  paper. 


INDUCEMENTS  TO  BUYERS  123 

In  giving  a  trade  acceptance,  the  buyer  has  proved  his  good 
faith  in  that  he  has  bound  himself  to  pay  an  honest  business 
debt  in  full  when  it  is  due.  He  has  provided  the  seller  with  the 
means  of  effecting  economy  in  his  business  and  it  would  seem 
that  this  service  may  be  recognized  when  prices  and  terms  are 
made. 

The  "Trade  Acceptance  Catechism"  compiled  in  1918 
by  Dr.  J.  T.  Holdsworth  for  the  American  Trade  Accept- 
ance Council  says  on  this  subject: 

The  buyer  who  closes  his  purchase  with  a  trade  acceptance, 
instead  of  leaving  it  on  open  account,  improves  his  credit  standing 
with  the  seller.  He  provides  the  seller  with  a  means  of  liquidat- 
ing his  sales  at  preferential  discount  rates  and  so  becomes  a 
preferred  customer  on  substantially  the  same  plane  as  the  cash 
discount  buyer,  and  entitled  to  the  best  price  and  service. 

The  trade  acceptance  ought  to  go  "over  the  top"  on  its  own 
merits,  but  some  houses  have  found  it  advisable,  in  order  to 
introduce  the  trade  acceptances,  to  offer  buyers  special  trade- 
acceptance  terms,  thus  making  the  advantages  of  giving  trade 
acceptances  definite  and  tangible  to  buyers. 

The  Executive  Secretary  of  the  American  Acceptance 
Council,  Robert  H.  Bean,  said,  in  January,  1920: 

The  point  is  that  the  merchant  should  be  convinced  that  for 
its  own  sake  the  trade  acceptance  is  the  better  plan  for  him  to 
follow  in  settling  his  accounts,  and  we  should  not  allow  him  to 
believe  that  it  is  a  cure-all,  that  there  is  any  magic  about  it 
which  will  bring  to  him  a  better  rate  of  discount  or  special 
privileges  from  the  concern  from  whom  he  buys  his  merchandise. 

At  a  semi-annual  conference  of  a  big  retail  association, 
it  was  apparent  in  a  discussion  of  trade  acceptances  that 
some  members  believed  that  they  were  placed  at  a  disad- 
vantage, rather  than  benefited,  by  the  signing  of  accept- 
ances. An  extract  from  the  report  of  the  discussion  fol- 
lows: 

On  the  conclusion  of  Mr.  W.'s  address,  Mr.  S.  opposed  the 
use  of  trade  acceptances  by  manufacturers  and  wholesalers  in 


124  ACCEPTANCES 

their  dealings  with  retailers.  He  emphasized  the  fact  that  an 
acceptance  amounted  to  the  same  thing  as  a  note,  the  retailer 
being  bound  thereto.  The  trade  acceptance,  Mr.  S.  said,  was  a 
fine  thing  for  the  banker  and  for  the  wholesaler,  but  he  did  not 
see  how  it  could  be  made  of  any  real  advantage  to  the  retailer. 

In  the  first  exhau^ive  investigation  of  the  use  of  the 
trade  acceptance  in  the  United  States  by  agents  of  the 
Federal  Reserve  Board,  the  payment  of  credit  by  trade  ac- 
ceptance was  put  in  a  similar  class  with  discounting  for 
cash.  The  following  is  a  quotation  from  a  report  to  the 
Federal  Reserve  Board: 

The  problem  must  be  solved  by  the  business  man  rather  than 
the  banker.  What  is  required  is  that  each  trade  find  a  solution 
which  will  be  suited  to  its  own  requirements.  It  appears  to 
the  Board  that  between  the  cash-discount  and  the  open-account 
sale  there  should  be  room  for  a  special  discount  for  sales  against 
trade  acceptances  and  that  this  discount  should  approach  very 
nearly  the  discount  granted  for  cash  sales.  If  business  men  will 
attack  the  problem  from  this  angle  and  the  banks  will  lend  their 
aid  by  granting  preferential  rates  for  trade  acceptances,  the 
problem  can  be  worked  out. 

The  following  is  the  view  of  a  prominent  man  in  the 
credit  field : 

I  see  no  fundamental  nor  business  objection  to  the  offering 
of  special  discounts  to  buyers,  where  necessai-y  to  get  them  to 
sign  trade  acceptance.  I  do  think  it  would  be  undesirable  to 
unduly  extend  the  time  for  payment,  as  all  extensions  of  time 
increase  the  credit  risk,  and  I  therefore  prefer  a  special  discount 
rather  than  extension  of  time  as  an  inducement. 

Bankers  consider  acceptances  higher-class  credit,  as 
shown  by  this  statement  made  by  a  Deputy-Governor  of 
a  Federal  Reserve  Bank: 

Ultimately  goods  will  be  sold  to  those  who  demand  long  credit 
on  the  basis  of  higher  prices  over  those  who  discount  or  sign 
trade  acceptances. 


INDUCEMENTS  TO  BUYERS  125 

It  would  appear  that  some  sellers  need  greater  accom- 
modations than  they  get  from  banks  and  can  afford  to  pay 
for  them,  or  advertisements  like  those  quoted  below  from 
one  issue  of  a  New  York  commercial  newspaper  would  not 
appear  daily  in  the  papers  all  over  the  country : 

WORKING  CAPITAL 

Your  investment  per  dollar  represents  LESS  in  merchandise 
and  material  than  ever  before,  therefore  if  you  want  to  do  the 
same  amount  of  business  you  must  employ  MORE  CAPITAL. 

A  large  part  of  your  money  is  tied  up  in  accounts  receivable — 
is  it  good  business  to  wait  until  your  customers  pay  their  bills, 
before  using  these  funds'? 

You  don't  have  to  wait,  for  we  will  cash  your  accounts  receiv- 
able and  accept  repayment  when  customers  pay  you. 

This  is  a  low  cost  service  and  your  customers  are  not  disturbed 
or  notified  of  our  interest  in  the  matter. 

You  really  ought  to  know  more  about  this  financial  assistance 
which  has  proven  so  valuable  to  responsible  manufacturers  and 
jobbers.     When  may  our  representative  call? 

INVESTMENT  TRUST 

Capital  $2,000,000 

Bradstreet's  says 

"LACK  OF  CAPITAL"  A  CHIEF  CAUSE  OP 
FAILURE 

For  24  out  of  the  past  28  years,  "Lack'  of  Capital"  has  been 
the  chief  cause  of  failures — but  for  the  past  three  years  it  has 
ranked  only  third,  notwithstanding-  the  unusual  strain  upon  cap- 
ital during  recent  years. 

Certainly  this  improvement  must  be  partly  due  to  the  enormous 
growth  of  the  practice  of  turning  into  immediate  cash,  dead, 
profitless  capital  previously  tied  up  in  Accounts  Receivable. 

Under  our  plan,  in  a  way,  you  increase  your  capital  simply  by 
releasing  that  part  of  it  which  is  tied  up  in  the  Accounts  of 
your  customers,  who  do  not  even  pay  you  interest.  We  let  you 
collect  the  Accounts  you  sell  us,  without  disturbing  your  customers. 

Why  divide  all  your  profits  with  a  Partner  or  Stockholders 


126  ACCEPTANCES 

in  order  to  get  more  capital,  if  you  have  that  capital  right  now 
in  your  business,  all  your  own,  tied  up  in  your  Accounts? 

We  put  that  money  to  work  for  you  and  avoid  the  handicap 
of  "Lack  of  Capital."     The  useful  object  of  our  business  is  to 
help  finance  increased  production  of  much-needed  commodities — 
incidentally  making  added  profits  for  all  concerned. 
Let  us  show  you  how! 

CREDIT   COMPANY 

Cash  Capital  $2,250,000.     Surplus  $450,000. 

Methods  Used  in  Getting  Big  Bulk  Returned. — A  dry- 
goods  jobber  gave  30  days  extra  time  for  acceptances  and 
got  $1,160,000  in  acceptances  from  his  customers  in  a  year. 
A  cotton  brokerage  house  has  given  inducements  for  the 
past  three  years.  A  high-grade  yarn  and  hosiery  company 
gives  1/2  of  1  per  cent  discount  for  signing.  A  prominent 
paper  house  gives  2  per  cent  for  signing  with  the  order. 
A  large  lumber  firm  gives  2  per  cent  flat  for  signing,  less 
5  per  cent  per  annum  for  interest  charge.  Members  of  a 
stove  association  give  i^  of  1  per  cent  extra  for  signing. 
Members  of  a  toy  association  give  1  per  cent  extra  for  sign- 
ing. The  percentage  of  firms  giving  inducements,  as  shown 
by  questionnaires  sent  to  users  in  the  United  States,  shows 
the  following  distribution:  those  giving  inducements — 59 
per  cent;  those  not  giving  inducements — 31  per  cent;  not 
stated — 10  per  cent. 

It  seems  permissible,  therefore,  by  present  custom  for 
each  seller  to  consider  his  own  case  and  adopt  methods  and 
terms  best  suited  to  produce  permanent  success  in  his  par- 
ticular field,  in  getting  the  greatest  number  of  trade  ac- 
ceptances from  his  customers  on  mutually  satisfactory 
terms.  In  these  matters  it  is  always  desirable  to  move 
slowly  and  along  conservative  lines. 


CHAPTER  XIII 

THE   TEADE    ACCEPTANCE    AND    THE    RETAIL    MERCHANT 

Retail  Possibilities  of  the  Trade  Acceptance. — It  seems 
obvious  that  the  broadest  field  for  the  use  of  the  trade 
acceptance  would  be  in  the  liquification  of  the  credit  sales 
of  retail  merchants  to  the  ultimate  consumer.  This  field  is 
one  with  almost  unlimited  possibilities  for  the  production 
of  this  kind  of  paper  in  every  city,  town,  and  hamlet  of 
the  country,  if  it  can  be  convincingly  proved  that  the  trade 
acceptance  is  needed  in  handling  retail  credits  and  that  the 
retail  trade  is  a  legal,  legitimate,  and  practical  source  from 
which  to  draw  the  trade  acceptance  of  commerce.  This 
chapter  will  discuss  the  effect  and  experience  through 
use  of  the  trade  acceptance  in  retail  credit  sales. 

It  will  readily  be  acknowledged  that  the  extension  of 
credit  to  the  consumer  is  more  abused  than  the  extension 
of  credit  to  any  other  class  of  buyer  and  that  the  retail 
merchant  suffers  more  than  any  other  business  man  from 
this  condition.  It  is  also  probably  true  that  the  retail 
credit  buyer  himself  suffers  greatly  from  the  loose  sys- 
tem of  retail  credits,  for  it  is  held  that  many  habitual 
"slow  pay"  or  "dead  beat"  credit  buyers  are  fostered 
and  created  from  the  overextension  of  credit  facilities  to 
them.  It  is  not,  therefore,  believed  that  the  interests  of 
the  consumer  would  be  prejudiced  by  signing  retail  trade 
acceptances. 

An  authority  speaking  of  another  angle  of  the  retail 
credit  says : 

127 


128  ACCEPTANCES 

The  handling  of  time-payment  sales  of  household  utilities  and 
other  useful  devices  has  been  for  many  years  one  of  the  loose 
ends  of  American  business.  The  sale  of  articles  on  the  time- 
payment  plan  has  increased,  as  the  safety  and  profit  of  this 
class  of  business  have  been  demonstrated,  to  a  gigantic  total, 
but  the  methods  of  handling  deferred  payments  and  the  finan- 
cing of  such  business  may  be  characterized  as  obsolete  and  un- 
certain. 


Credit  Necessary  in  Retail  Trade. — Although  purchases 
for  cash  are  most  desirable  in  any  business  transaction,  it 
is  probable  that  in  no  class  of  trade  is  the  extension  of 
credit  more  necessary  to  the  practical  carrying  on  of  busi- 
ness than  in  the  retail.  It  is  next  to  impossible  to  carry 
on  a  majority  of  retail  businesses  on  a  cash  or  even  an 
approximately  cash  basis.  One  reason  is  that  numerous 
households  only  get  cash  through  weekly  or  monthly  sal- 
aries or  at  stated  intervals  or  after  harvest  or  the  sale  of 
certain  goods  or  commodities.  Therefore  they  find  it  de- 
sirable, if  not  absolutely  necessary,  to  be  "carried  on 
credit"  in  the  meantime.  Another  reason  is  the  incon- 
venience to  "regular  customers"  of  paying  cash  for  many 
small  daily  purchases. 

Credit,  therefore,  is  almost  a  corollary  of  retail  business 
and  it  is  of  the  highest  importance  to  find  plans  to  make 
the  necessary  retail  credits  as  safe  and  liquid  as  those  of 
the  manufacturer  or  jobber  of  the  most  successful  class. 
To  emphasize  the  fact  that  the  situation  is  far  from  sat- 
isfactory at  the  present  time  it  is  unnecessary  to  scan  the 
"failure  records"  and  note  how  large  a  percentage  of  them 
are  in  the  retail  trade,  for  we  have  the  fact  graphically 
brought  to  our  attention  by  the  retailers  tliemselves  in 
comments  on  the  situation  by  their  associations,  which  are 
in  the  best  position  to  know  the  facts. 

The  Consumers'  League,  cooperating  with  the  Associated 
Retail  Credit  Men  of  New  York,  prepared  an  article  on 


THE  RETAIL  MERCHANT  129 

the  subject  of  prompt  payments  of  bills,  of  which  the 
following  are  extracts: 

The  standard  for  classifying  charge  customers  in  most  of  the 
stores  has  been  as  (1)  payment  within  one  month  good;  (2) 
payment  within  two  months,  satisfactory;  (3)  payment  within 
three  months,  poor;  (4)  payment  within  four  months,  unsatis- 
factoiy. 

Who  pays  the  costs  of  stenographers,  secretaries,  and  of  col- 
lectors who  spend  all  their  time  in  following  up  and  dunning 
the  delinquents?  The  number  of  charge  customers  in  some  of 
the  largest  department  stores  is  above  100,000,  which  is  from 
50  to  75  per  cent  of  the  total  business,  and  the  slow  payment 
of  bills  is  limited  to  between  10  and  15  per  cent  of  the  charge 
customers.  The  10  per  cent  of  the  customers  who  are  slow  pay- 
ing have  added  to  the  costs  to  the  other  90  per  cent. 

The  majority  of  the  stores  reported  that  75  per  cent  of  the 
slow-paying  customers  are  delinquent  only  through  carelessness. 
To  do  away  entirely  with  the  charge-account  privilege  would 
greatly  inconvenience  the  shoppers  and  perhaps  hurt  the  stores. 

Little  doubt  is  felt  that  the  public  will  give  its  cooi^eration  if 
the  need  for  prompt  settlement  of  retail  accounts  on  patriotic 
gx-ounds  is  made  clear  to  them.  The  advertising  campaign  con- 
ducted by  the  New  York  Telephone  Company,  to  improve  the 
character  of  its  credits,  has  been  cited  as  an  example  of  effective 
advertising  of  this  kind. 

Comments  by  Authorities  on  Use  of  Acceptances  for 
Retail  Sales. — The  head  of  a  national  association  of  retail 
merchants  says: 

At  the  present  time  the  trade-acceptance  movement  is  of  no 
benefit  to  the  retailer,  unless  ways  and  means  can  be  devised  by 
which  the  retailer  can  get  the  same  benefit  out  of  it  as  is  derived 
by  the  manufacturer  or  wholesale  distributor. 

The  trouble  is  that  the  trade-acceptance  movement  is  going 
head  downward. 

An  attempt  is  being  made  to  start  the  big  thing,  whereas  it 
is  more  important  to  do  the  small  thing  first, 

A  vice-president  of  the  largest  trust  company  in  the 
country  said: 


130  ACCEPTANCES 

In  European  countries,  especially  in  France,  the  public  has 
been  educated  in  this  idea  for  very  many  years.  There  the 
customer  who  buys  on  credit  signs  a  slip  for  his  purchases,  which 
is  virtually  a  trade  acceptance.  If  such  a  custom  can  in  time 
be  inaugurated  here,  we  shall  have  the  foundation  from  which 
to  work  up  to  the  manufacturer,  instead  of  commencing  with 
him  as  we  are  now  trying  to  do.  The  simple  signature  of  the 
customer  to  the  charge  slip  made  out  by  the  salesmen  is  vir- 
tually an  acceptance  without  a  due  date,  but  we  might,  it  seems 
to  me,  make  a  beginning  in  that  way. 

The  thin  end  of  the  wedge  thus  having  been  inserted,  in  spite 
doubtless  of  strong  protests  amounting  to  almost  a  revolution 
on  the  part  of  the  stronger  and  fairer  element  of  the  community, 
I  do  not  think  that  the  retailer  himself,  and  then  the  wholesaler 
and  manufacturer,  would  have  any  legitimate  excuse  to  stay  out. 

The  Duty  of  Modern  Business  Science  toward  the  Re- 
tailer.— Modern  business  science,  if  it  does  not  find  a  prac- 
tical way  out  of  the  credit  quicksands  for  the  retailer, 
will  fail  signally  in  its  duty  to  business  in  general  and, 
in  particular,  to  the  worthy  host  of  retailers,  who  so  as- 
siduously purvey  to  the  public's  every  need. 

The  nearer  the  merchant  can  approximate  the  methods 
of  the  banker  in  extending  credit,  the  nearer  100  per  cent 
safety  and  efficiency  will  he  attain.  The  banker  transacts 
only  a  part  of  his  business  for  "cash,"  for  his  principal 
profits  are  from  loaning  his  money.  It  would  be  unde- 
sirable for  him  to  run  on  the  "open  charge  account"  sys- 
tem; no  one  would  expect  a  banking  system  to  succeed 
upon  such  a  loose  basis  of  credit.  The  keystone  of  the 
banking  business  is  the  paper  held,  which  represents  valid 
and  binding  promises  by  "customers"  of  the  banks  to  pay 
at  a  fixed  date  a  certain  sum  in  money. 

When  a  banker  delivers  cash,  or  its  equivalent,  he  gets 
a  legal,  signed  order  or  receipt  for  it  (check,  note,  draft, 
or  acceptance)  to  cover  safely  the  credit  he  grants.  The 
banker's  first  thought  as  to  his  credits  is.  "Are  they  liquid? 


THE  RETAIL  MERCHANT  131 

How  quickly,  fully,  and  cheaply  can  I  realize  upon  them 
in  case  of  need  ? ' '  Does  the  retail  merchant  give  sufficient 
thought  and  attention  to  these  qualities  of  his  credits? 
These  are  the  banker's  first  consideration  and  upon  them 
he  judges  the  desirability  of  his  "sales." 

The  retail  merchant's  error  has  been  in  allowing  his 
credits  to  become  frozen,  not  negotiable  (liquid),  and  his 
banker,  of  course,  has  known  it.  This  made  his  purchase 
of  money  from  the  banker  difficult  and  expensive,  because 
the  banker  usually  did  not  get  even  approximately 
** prime"  or  liquid  collateral  in  return  for  his  cash. 
Therefore  his  credits  had  to  be  "carried"  by  his  jobbers, 
often  under  expensive  handicaps.  The  Federal  Reserve 
Act  and  rulings  of  the  Federal  Reserve  Board  have  shown 
the  retailer  a  method  to  get  paper  which,  if  carefully  taken 
from  good  credit  risks,  might  furnish  to  the  banker  a  basis 
of  credit  of  very  satisfactory  negotiability  and  liquidity. 

Discountability  of  Trade  Acceptances  Taken  from  Con- 
sumers.— The  legitimacy  of  retail  trade  acceptances  was 
apparently  established  by  the  Federal  Reserve  Board,  as 
official  interpreter  of  the  Federal  Reserve  Act,  in  its  first 
regulation,  issued  November  10,  1914,  in  regard  to  the 
discount  policy  on  commercial  paper.  In  speaking  of  bills 
of  exchange,  later  specifically  designated  by  it  as  "trade 
acceptances,"  this  ruling  says: 

They  ought  to  be  essentially  "self-liquidating-,"  or,  in  other 
words,  should  represent  in  every  ease  some  distinct  step  or  stage 
in  the  productive  or  distributive  process — the  progression  of 
goods  from  producer  to  consumer.  The  more  nearly  these  steps 
approach  the  final  consumer,  the  smaller  will  be  the  amount 
involved  in  each  transaction  as  represented  by  the  bill,  and  the 
more  automatically  self -liquidating  will  be  its  character. 

From  this  it  will  be  seen  that,  even  before  the  Federal 
Reserve  Banks  were  organized  and  over  eight  months  be- 
fore the  ruling  of  July  15,  1915,  which  defined  and  lim- 


132  ACCEPTANCES 

ited  the  plan  and  scope  of  the  "trade  acceptance,"  the 
Board  sanctioned  the  use  of  such  paper  in  the  "progres- 
sion of  goods  from  producer  to  consumer. ' ' 

Informal  Rulings  upon  Trade  Acceptance  Arising  from 
Retail  Credits. — In  order  to  clear  up  any  doubt  in  the 
mind  of  banker  or  merchant  as  to  whether  "goods"  sold 
by  a  retail  merchant  to  the  ultimate  consumer  were  a 
proper  basis  for  a  trade  acceptance,  which  would  com- 
mand the  same  standing  accorded  to  one  arising  from  a 
wholesale  transaction,  an  inquiry  propounding  this  ques- 
tion was  addressed  by  the  author  to  the  Federal  Reserve 
Board.  The  answer  of  the  Board,  by  Governor  "W.  P.  G. 
Harding,  under  date  of  July  19,  1917,  herewith  repro- 
duced, seems  to  indicate  that  the  trade  acceptance  arising 
from  an  absolute  retail  sale  (but  not  on  consignment  or 
recoverable  contract)  is  put  on  a  level  with  any  other 
type  of  commercial  paper  arising  from  the  same  grade  of 
credit : 

Query:  If  goods  were  sold  to  a  consumer  and  he  accepted  a 
regular  form  of  trade  acceptance  for  same,  would  this  be  con- 
sidered a  trade  acceptance  the  same  as  an  acceptance  of  the 
buyer  who  expected  to  resell  the  goods'? 

In  other  words,  if  a  retailer  took  an  acceptance  from  his 
customers  for  clothes,  groceries,  etc.,  would  this  be  considered 
as  a  trade  acceptance  and  rediscounted  as  such  b}^  the  Federal 
Reserve  Banks  if  filled  out  as  a  regular  trade  acceptance  in 
proper  form? 

Answer:  Under  the  rulings  of  the  Federal  Reserve  Board 
a  bill  of  exchange  drawn  by  the  seller  of  goods  and  accepted  by 
the  purchaser  of  those  goods,  is  a  trade  acceptance,  regardless 
of  whether  or  not  the  purchaser  intends  to  resell  the  goods  or 
to  use  them  for  his  own  purposes.  Consequently,  if,  as  you 
suggest,  a  retailer  takes  an  acceptance  from  his  customer  for 
clothes  or  groceries,  etc.,  the  acceptance  would  be  a  trade  accept- 
ance within  the  rulings  of  the  Board,  and  would  be  eligible  for 
rediscount  by  a  Federal  Reserve  Bank,  provided  it  is  otherwise 
eligible  under  the  terms  of  the  Federal  Reserve  Act  and  the 
regulations  of  the  Board. 


THE  RETAIL  MERCHANT  133 

Subsequently  the  following  correspondence  took  place: 

Query:  Under  your  letter  to  me  of  July  19,  1917,  copy  of 
which  I  attach,  I  recommended  to  the  Guaranty  Securities  Cor- 
poration that  they  should  arrange  to  have  the  dealer  who  sells 
an  automobile  to  a  retail  customer  take  from  such  customer  a 
trade  acceptance  for  such  automobile,  and  that  these  trade 
acceptances  will  be,  according  to  your  letter,  eligible  for  re- 
discount benefits. 

Answer:  The  Federal  Reserve  Board  is  of  the  opinion  that 
a  bill  of  exchange  drawn  by  an  automobile  dealer  on  a  retail 
customer  covering  a  sale  of  an  automobile  to  that  customer  is 
a  trade  acceptance  within  the  meaning  of  the  Board's  regulations 
as  stated  in  our  letter  of  July  19,  1917,  and  also  that  it  is  a 
bill  of  exchange  drawn  .against  actually  existing  values  and 
therefore  not  subject  to  the  limits  imposed  by  Section  5200  of 
the  Revised  Statutes  and  Section  13  of  the  Federal  Reserve  Act. 

In  the  present  chapter  various  phases  of  retail  credits 
have  been  touched  upon  and  the  possibility  of  applying 
trade  acceptances  to  them,  together  with  opinions  as  to 
the  legality  of  such  procedure.  In  Chapter  XXII  de- 
tailed methods  now  in  use  and  suggested  for  adoption  by 
the  retailer  will  be  discussed. 


CHAPTER  XIV 

bankers'  acceptance,  definition  and  functions 

Bankers'  acceptances,  both  foreign  and  domestic,  have 
a  function  different  from  that  of  the  trade  acceptance  but 
so  valuable  as  to  claim,  along  with  the  trade  acceptance, 
the  earnest  attention  and  favor  of  the  American  business 
man,  while  being  of  much  more  intimate  importance  to 
the  banker.  In  fact,  at  this  time,  the  bankers'  accept- 
ances total  in  dollars  to  many  times  the  aggregate  of  the 
trade  acceptances  discounted,  accepted,  or  current  in  this 
country.  Both  have  equally  legitimate  and  valuable  fields, 
as  fully  pointed  out  and  defined  by  the  Federal  Reserve 
Act  and  the  rulings  of  the  Federal  Reserve  Board.  A 
trade  acceptance  can  cover  only  domestic  merchandise 
sales,  while  bankers'  acceptances  can  cover  such  dealings 
whether  they  were  originated  or  concluded  in  this  or  a 
foreign  country,  as  well  as  merchandise  in  warehouse  or 
transit  and  not  sold  to  or  accepted  by  a  buyer,  besides 
other  legitimate  business  transactions.  It  is  expedient  that 
the  merchants,  as  well  as  the  bankers  and  students  of 
finance,  study  how  the  use  of  the  bankers'  acceptance  may 
be  profitably  applied  in  the  commercial  transactions  of 
the  country. 

Distinguishing  Marks  and  Functions  of  the  Bankers' 
Acceptance. — Bankers'  acceptances  are  easily  distinguished 
from  trade  acceptances.  The  unmistakable  and  funda- 
mental difference  is  that  the  bankers'  acceptance  must  be 
accepted  by  a  "bank  or  trust  company,  or  a  firm,  person, 
company,  or  corporation  engaged  in  the  business  of  grant- 

134 


BANKERS'  ACCEPTANCES  135 

ing  bankers'  acceptance  credits,"  while  a  trade  accept- 
ance may  be  accepted  by  any  "company,  firm,  corporation, 
or  person  upon  whom  it  is  drawn." 

Except  in  a  case  in  which  a  trade  acceptance  is  drawn 
against  a  banker  for  goods  sold  to  him,  it  is  evident  that 
an  acceptance  is  accepted  by  a  banker  for  the  purpose 
of  using  his  name  as  an  aid,  or  means,  to  obtain  or  guar- 
antee credit  leased  upon  such  an  acceptance.  The  basis 
of  credit  of  the  trade  acceptance  is,  at  least  theoretically, 
the  fact  that  it  must  be  drawn  for  goods  sold  by  the 
drawer  to  the  drawee,  or  acceptor,  although,  in  fact,  the 
credit  of  the  acceptor,  indorsers  (if  any),  and  maker  largely 
affects  its  standing.  In  a  like  manner  the  banker  accept- 
ing the  bankers'  acceptances  is  the  one  to  whom  the  holder 
looks  for  payment,  and  the  banker's  standing  gives  to  this 
instrument  its  high  standing. 

Addition  to  Credit  Instruments  of  the  United  States.—. 
Any  one  of  the  three  acceptances  (bankers'  domestic,  bank- 
ers' foreign  or  trade)  is  valuable  in  its  field,  but  the  three 
together  should  put  the  finance  of  American  credit  busi- 
ness on  an  impregnable  basis.  This  would  only  require 
that  the  business  man  use  the  foundation  laid  by  the  finan- 
cial mind  to  its  full  capacity,  in  order  to  build  up  an  edi- 
fice of  domestic  and  foreign  trade  of  almost  inconceivable 
proportions,  an  achievement  which  would  probably  have 
been  impossible  without  the  addition  to  our  other  forms 
of  paper  of  both  the  bankers'  and  trade  acceptances. 

As  the  oldest  and,  obviously,  the  most  indispensable  of 
the  bankers'  acceptances,  the  "foreign"  has  been  used 
most  freely,  and  in  dollars  and  cents  is  preeminent  at  the 
present  time.  The  bankers'  domestic  acceptance  was  not 
authorized  under  the  Federal  Reserve  Board 's  first  rulings, 
but  later,  under  the  ruling  of  September  7,  1916.  Its  value 
is  so  obvious  to  big  businesses  and  banks  that  they  have 
availed  themselves  of  it  freely,  and  its  use  and  volume  are 


136  ACCEPTANCES 

increasing  rapidly,  because  it  is  favored  by  bankers  and 
discount  experts  to  cover  business  transactions  of  sub- 
stantial amounts. 

Acceptance  Usage  Understood  by  Bankers  Familiar 
with  Foreign  Trade. — Since  the  American  importer  and 
exporter  have  enjoyed  the  full  facilities  of  the  Federal 
Reserve  System  in  financing  their  foreign  trade,  there  has 
been  little  hesitation  to  take  full  advantage  of  them.  This 
quick  grasp  of  their  advantages  has  come  about  largely 
through  the  leadership  and  cooperation  of 'the  banks  and 
bankers  handling  this  class  of  finance.  A  banker  well 
versed  in  foreign  trade  usage  said: 

To  those  who  have  been  engaged  in  foreign  trade,  it  is  difiBcult 
to  vinderstand  that  any  extended  arguments  should  be  necessary 
to  demonstrate  the  advantages  that  accrue  to  the  merchant  in 
closing  his  accounts  by  means  of  an  accepted  trade  bill.  It  is 
a  custom  that  has  prevailed  in  both  import  and  export  trade 
probably  from  the  time  that  ships  first  sailed  the  seas  as  carriers 
of  trade.  Without  the  trade  bill,  it  would  have  been  impossible 
to  develop  the  foreign  business  of  any  country. 

From  coast  to  coast  the  big  banks,  and  particularly  those 
in  the  seaboard  cities,  have  encouraged  and  assisted  the 
business  men  in  this  movement  for  efficient  foreign-trade 
settlements  in  a  very  helpful  manner  and  with  splendid 
vision  and  generosity  of  purpose.  The  following  is  quoted 
from  the  foreign-trade  department  of  a  technical  journal, 
which,  in  speaking  of  benefits  of  the  bankers'  foreign  ac- 
ceptances, states: 

Prior  to  the  outbreak  of  the  European  War,  all  financing  of 
American  foreign  trade  was  ultimately  transacted  through  Lon- 
don banks,  which,  of  course,  collected  their  toll  for  the  service. 
Whether  it  was  a  Paterson  manufacturer  buying  silk  from  Japan 
or  a  manufacturer  in  the  Middle  West  selling  tractors  to  the 
Far  East,  the  banks  of  England  financed  and  dominated  all 
world  trade  because  Sterling  exchange  was  available  in  all  parts 
of  the  world.     In  London  no  less  than  18  discount  banks,  in- 


BANKERS'  ACCEPTANCES  137 

eluding  four  incorporated  companies  and  14  private  firms,  with 
an  aggregate  capital  in  excess  of  $50,000,000,  were  the  instru- 
ments of  this  great  financial  business,  which  is  estimated  to 
have  cost  American  exporters  and  importers  about  $10,000,000 
a  year. 

With  the  outbreak  of  the  war,  imposing  new  conditions,  the 
London  market  was  compelled  to  restrict  its  financial  transaction 
and  American  financiers  grasped  the  opportunity  to  free  them- 
selves of  their  dependence  on  Great  Britain.  Moreover,  their 
position  with  reference  to  London  had  undergone  a  radical  change 
in  that  they  had  become  the  lenders  of  billions  to  this  market 
instead  of  its  debtors.  The  acceptance,  a  form  of  commercial 
paper  long  in  use  abroad,  had  been  made  possible  in  the  United 
States  for  the  accommodation  of  merchants  transacting  both 
foreign  and  domestic  trade  through  the  rulings  of  the  Federal 
Reserve  Board  under  the  Federal  Reserve  Banking  Act. 


Bankers'  Acceptance  Defined  by  Federal  Reserve  Act. 

— The  definition  of  bankers'  acceptance,  as  promulgated 
by  the  Federal  Reserve  Board,  is  herewith  appended : 

(a)  Definitiox.  A  bankers'  acceptance,  within  the  meaning 
of  this  regulation,  is  a  bill  of  exchange  of  which  the  acceptor 
is  a  bank  or  trust  company,  or  a  firm,  person,  company,  or 
corporation  engaged  in  the  business  of  granting  bankers'  ac- 
ceptance credits. 

(h)  Eligibility.  To  be  eligible  for  pm-chase,  the  bill,  which 
must  have  a  maturity  at  time  of  purchase  of  not  more  than  three 
months,  exclusive  of  days  of  grace,  must  have  been  drawn  under 
a  credit  opened  for  the  purpose  of  conducting,  or  settling  accounts 
resulting  from  a  transaction  or  transactions,  involving: — 

(1)  The  shipment  of  goods  between  the  U^nited  States  and  any 
foreign  country,  or  between  the  United  States  and  any  of 
its  dependencies  or  insular  possessions,  or  between  foreign 
countries,  or 
'  (2)  The  shipment  of  goods  within  the  United  States,  provided 
the  bill  at  the  time  of  its  acceptance  is  accompanied  by 
shipping  documents,  or 
(3)  The  storage  within  the  United  States  of  readily  marketable 
goods,  provided  the  acceptor  of  the  bill  is  secured  by  ware- 
house, terminal,  or  other  similar  receipt,  or 


138  ACCEPTANCES 

(4)  The  storage  within  the  United  States  of  goods  which  have 
been  actually  sold,  provided  the  acceptor  of  the  bill  is  se- 
cured by  the  pledge  of  such  goods,  or  it  must  be  a  bill  drawn 
by  a  banker  or  bank  in  a  foreign  country  or  dependency  or 
insular  possession  of  the  United  States  for  the  purpose  of 
furnishing  dollar  exchange.  In  this  latter  case  the  bank  or 
banker  drawing  the  bill  must  be  in  a  countiy,  dependency,  oi 
possession  whose  usages  of  trade  have  been  determined  by 
the  Federal  Reserve  Board  to  require  the  drawing  of  bills 
of  this  character. 

(c)  Evidence  of  Eligibility.  A  Federal  Resei've  Bank  must 
be  satisfied  either  by  reference  to  the  acceptance  itself,  or  other- 
wise, that  it  is  eligible  for  purchase.  Satisfactory  e\'idence  of 
eligibility  may  consist  of  a  stamp  of  certificate  affixed  by  the 
acceptor,  in  form  satisfactory  to  the  Federal  Reserve  Bank. 
No  evidence  of  eligibility  is  required  with  respect  to  a  bill 
accepted  by  a  national  bank. 

(d)  Statements.  Bankers'  acceptances,  other  than  those 
accepted  or  indorsed  by  member  banks,  shall  be  eligible  for  pur- 
chase only  after  the  acceptor  has  furnished  a  satisfactory  state- 
ment of  financial  condition  in  form  to  be  approved  by  the  Federal 
Reserve  Board  and  has  agreed  in  writing  with  a  Federal  Reserve 
Bank  to  inform  it  upon  request  concerning  the  transactions  under- 
lying such  acceptances. 

The  Federal  Reserve  Board  in  Regulation  B,  Series  of 
1916,  defined  and  superseded  the  previous  rules  as  to  char- 
acter of  acceptances  eligible  for  purchase  in  the  open  mar- 
ket ;  it  is  as  follows : 

Character  of  Bills  and  Acceptances  Eligible 

The  Federal  Reserve  Board,  exercising  its  statutory  right  to 
regulate  the  purchase  of  bills  of  exchange  and  acceptances,  has 
determined  that  a  bill  of  exchange  or  acceptance,  to  be  eligible 
for  purchase  by  Federal  Reserve  Banks  under  Section  14: 

(a)  Must  not  have  been  issued  for  carrying  or  trading  with 
stocks,  bonds,  or  other  investment  securities,  except  bonds  and 
notes  of  the  Government  of  the  United  States. 

(&)  Must  not  be  a  bill  the  proceeds  of  which  have  been  used 
or  are  to  be  used  for  pennanent  or  fixed  investments  of  any  kind, 


BANKERS'  ACCEPTANCES  139 

such  as  land,  building,  or  machinery,  or  for  investments  of  a 
merely  speculative  character. 

(c)  Must  have  been  accepted  by  the  drawee  prior  to  purchase 
by  a  Federal  Reserve  Bank  unless  it  is  accompanied  and  secured 
by  shipping  documents  or  by  a  warehouse,  terminal,  or  other 
similar  receipt  conveying  security  title. 

{d)     May  be  secured  by  the  pledge  of  goods  ^  or  collateral. 

Further  rulings  with  respect  to  the  limitation  in  U.  S. 
R.  S.  Sections  5200  and  5202  and  Section  13  of  the  Fed- 
eral Reserve  Act  cover  the  following: 

1.  Limitations  on  the  authority  of  member  hanks  to  make 
acceptances  : 

(a)  The  limitation  contained  in  section  5202  R.  S.  does  not 
apply  to  acceptances  made  by  member  banks  under  the 
provisions  of  Section  13  of  the  Federal  Reserve  Act.  (See 
Federal  Reserve  Bulletin,  vol.  II,  p.  680). 

(&)  Acceptances  made  by  a  member  bank  and  held  by  a  party 
other  than  such  bank  are  not  within  the  limitations  of  Sec- 
tion 5200  R.  S.  (See  Federal  Reserve  Bulletin,  vol.  II,  p. 
680.) 

(c)  Acceptances  made  by  a  member  bank  and  held  in  its  own 
portfolio  are  subject  to  the  limitation  of  Section  5200  R.  S. 
(See  Federal  Reserve  Bulletin,  vol.  II,  p.  680.) 

2.  Discount  of  acceptances  by  member  banks: 

(a)  The  discount  by  a  member  bank  of  a  trade  acceptance  for 
the  acceptor  is  subject  to  the  limitations  of  Section  5200 
R.  S.     (See  Federal  Reserve  Bulletin,  vol.  II,  p.  680.) 

(&)  The  discount  by  a  member  bank  of  an  acceptance  for  the 
drawer,  or  any  other  bona  fide  owner  for  value,  is  not  subject 
to  the  limitations  of  Section  5200  R.  S.  (See  Federal  Re- 
serve Bulletin,  vol.  II,  p.  680.) 

3.  Rediscount  of  acceptances  by  Federal  Reserve  Banks: 

(a)  Acceptances  rediscounted  with  Federal  Reserve  Banks  are 
not  subject  to  the  limitations  of  Section  13  of  the  Federal 

*When  used  in  this  regulation  the  word  "goods"  shall  be  con- 
strued to  include  goods,  wares,  merchandise,  or  agricultural  products, 
including  livestock. 


140  ACCEPTANCES 

Reserve  Act  if  they  have  been  drawn  at  the  time  of  or  within 
a  reasonable  time  after  the  shipment  or  delivery  of  the  goods 
sold,  and  if  there  are  reasonable  grounds  to  believe  at  the 
time  the  bill  is  drawn  that  the  goods  are  in  existence  in  the 
hands  of  the  drawee,  either  in  their  original  form  or  in  the 
shape  of  the  proceeds  of  their  sale.  (See  Federal  Reserve 
Bulletin,  vol.  Ill,  p.  195.) 
(&)  A  bill  of  exchange  rediscounted  with  a  Federal  Reserve 
Bank  before  acceptance  is  not  subject  to  the  limitations  of 
Section  13  of  the  Federal  Reserve  Act,  only  if  it  is  accom- 
panied by  shipping  documents,  warehouse  receipts  or  other 
papers  securing  title,  to  the  goods  sold.  (See  Federal  Re- 
serve Bulletin,  vol.  Ill,  p.  195.) 

Broad  Interpretation  of  Law  Covering  Bankers'  Ac- 
ceptances.— Many  clauses  favoring  the  judicious  extension 
of  the  coverage  of  the  act  have  been  promulgated  by  the 
Board,  such  as  the  acceptance  privilege  for  national  banks 
when  funds  that  result  from  acceptances  are  intended  to 
produce  merchandise  for  ultimate  export,  or  when  such 
moneys  are  to  be  applied  to  the  purchase  of  goods  to  be 
shipped  abroad  from  the  United  States.  This  judiciously 
affords  a  broader  scope  to  the  application  of  the  Act,  and 
should  result  beneficially  to  export  trade. 

"Dollar  Exchange"  for  Foreign  Trading. — In  addition 
to  clauses  favoring  the  banker's  acceptance  based  upon  a 
merchandise  transaction,  the  following  clause  is  of  in- 
terest in  showing  the  admirable  machinery  supplied  by  the 
Federal  Reserve  Act  to  assist  in  handling  our  foreign  trade. 

Any  member  bank  desiring  to  accept  drafts  drawn  by  banks 
or  bankers  in  foreign  countries  or  dependencies  or  insular  pos- 
sessions of  the  United  States  for  the  purpose  of  furnishing 
Dollar  Exchange,  shall  first  make  application  to  the  Federal 
Reserve  Board,  setting  forth  the  usages  of  trade  in  the  respec- 
tive countries,  dependencies  or  insular  possessions  in  which  such 
banks  or  hankers  are  located. 

The  Federal  Reserve  Board  reserves  the  right  to  modify  or  on 
ninety  days'  notice  to  revoke  its  approval,  either  as  to  any  par- 


BANKERS'  ACCEPTANCES  141 

ticular  member  or  as  to  any  foreign  country  or  dependency  or 
insular  possessions  of  the  United  States  in  which  it  has  author- 
ized banks  or  bankers  to  draw  on  member  banks  for  the  purpose 
of  furnishing  Dollar  Exchange.. 

Bankers'  Acceptances  Not  Favored  When  Inconsistent 
with  Sound  Banking  Principles. — The  Federal  Reserve 
Board,  while  encouraging  the  legitimate  use  of  the  bankers' 
acceptance,  both  foreign  and  domestic,  in  general  trade 
and  in  special  lines  or  activities,  has  evidenced  its  cautious 
consideration  of  the  future  of  the  acceptance  by  its  fail- 
ure to  grant  the  rediscount  privileges  of  the  Reserve  Banks 
to  90-day  bankers'  acceptances  issued  under  an  agreement 
of  the  accepting  bank  to  renew  the  acceptance  for  a 
given  period  at  a  fixed  rate  of  discount.  The  Board  has 
expressed  the  belief,  in  a  circular  signed  by  Governor 
Harding,  that  such  a  practice  would  be  detrimental  to  ac- 
ceptances, since  it  would  tend  to  violate  the  fundamental 
principle  of  the  acceptance  theory,  that  acceptances  are 
self-liquidating  paper  arising  from  merchandise  transac- 
tions. The  Board  also  believed  this  practice  an  infringe- 
ment upon  the  well  established  principle  of  the  rate  of 
discount's  being  subject  to  conditions  at  the  time  of  dis- 
counting, as  is  the  usage  in  Europe,  where  rate  of  dis- 
count is  based  upon  supply  and  demand  for  such  paper. 

Bankers'  Acceptance  to  Finance  Cotton  Crop. — The 
Federal  Reserve  Board  went  to  considerable  lengths  during 
the  World  War  to  encourage  the  adoption  of  90-day  ac- 
ceptances, accepted  by  buyer's  banks,  to  help  finance  the 
cotton  crop  which,  at  prices  nearly  three  times  as  much 
per  bale  as  formerly,  had  become  a  serious  problem  for 
the  buyers  and  the  banks. 

Governor  W.  P.  G.  Harding,  in  advocating  this,  said  in 
summing  up: — 

I  think  in  the  interest  of  the  cotton  broker,  in  the  interest  of 
the  Southern  grower,  in  the  interest  of  banks  in  the  country  at 


142  ACCEPTANCES 

large,  and  in  the  interest  of  the  Federal  Reserve  System;  it  is 
well  to  introduce  this  new  plan  if  it  can  possibly  be  done.  There 
may  be  some  objections  to  it,  but  I  have  not  received  any  com- 
munication from  any  one  protesting  against  it. 

State  Laws  and  Local  Rulings  Governing-  Acceptances. 

• — The  state  laws  are  also  important  iu  covering  the  accept- 
ance procedure  of  state  institutions.  The  New  York  Bank- 
ing Law  permits  greater  latitude  than  does  the  Federal 
Reserve  Act.  In  New  York  state  banks  and  trust  com- 
panies may  accept  acceptances  without  security  and  with- 
out reference  to  the  exportation  of  goods.  It  permits  one 
of  them: 

To  accept  for  payment  at  a  future  date  drafts  drawn  upon  it 
by  its  customers,  and  to  issue  letters  of  credit  authorizing  the 
holders  thereof  to  draw  drafts  upon  it  or  its  correspondents,  at 
sight  or  on  time,  not  exceeding  one  year. 

The  laws  of  other  states  vary  considerably  in  limiting 
acceptance  by  state  banking  institutions,  but  all  states,  ex- 
cept Pennsylvania,  make  acceptances  eligible  for  invest- 
ment by  savings  banks. 

Supplementing  an  order  of  the  New  York  Clearing 
House,  that  bank  acceptances  may  be  sent  through  the 
clearing-house  on  the  day  of  their  maturity,  a  rule  requir- 
ing clients  to  provide  their  banks  with  funds  to  meet  all 
acceptances  made  for  their  accounts  on  the  day  of  ma- 
turity has  been  adopted  by  leading  banks  in  New  York 
and  other  money  centers. 

The  rule  was  embodied  in  the  following  resolutions, 
adopted  at  a  meeting : 

Whereas,  The  Clearing  House  Committee  of  the  New  York 
Clearing  House  Association  by  resolution  adopted  July  29,  1918, 
effective  August  1,  1918,  has  ruled  that  acceptances  may  be 
passed  through  the  clearings  on  the  day  of  their  maturity;  and 

Whereas,  It  has  therefore  become  necessary  that  banks  execut- 
ing acceptances  which  are  payable  through  the  New  York  Clear- 


BANKERS'  ACCEPTANCES  143 

ing  House  adopt  some  uniform  rule  covering  the  time  and  manner 
of  reimbursement  from  their  clients  for  such  acceptances; 

Resolved,  That  the  accepting  bank  shall  require  from  its  clients 
that  it  be  placed  in  funds  to  meet  acceptances  on  day  of  maturity, 
either  by, 

(a)   The  deposit  of  clearing-house  funds  one  day  prior  to  ma- 
turity, or 
(&)  The  deposit  of  cash  or  cheek  on  the  Federal  Reserve  Bank 

of  New  York  on  the  day  of  maturity,  or 
(c)  Debit  to  the  account  of  the  bank's  client  on  day  of  matur- 
ity against  fimds  cleared  on,  or  prior  to,  such  date. 

Procedure  of  Bankers'  Acceptance. — As  it  would  be 
manifestly  impossible  in  a  brief  chapter  or  two  to  more 
than  touch  on  the  various  phases  of  the  bankers'  accept- 
ance, it  will  be  necessary  in  this  discussion  merely  to  out- 
line the  theory  of  the  bankers'  acceptance,  both  foreign 
and  domestic,  and  its  main  functions,  and,  so  far  as  pos- 
sible, to  define  the  uses  and  application  of  the  bankers' 
acceptance  to  business  needs.  Methods  and  forms  will  be 
covered  in  detail  in  the  following  chapter. 


CHAPTER  XV 

bankers'  acceptance  methods,  and  forms  op  leading  banking 
institutions 

Acceptances  in  Foreign  Trade. — One  of  the  most  valu- 
able phases  of  the  study  of  the  bankers'  acceptance  is  that 
of  the  forms  and  methods  of  handling  details  employed  by 
the  big  banking  institutions  of  the  country  who  are  thor- 
oughly experienced  in  the  practical  and  profitable  use  of 
the  bankers'  acceptance.  This  chapter  illustrates  some  of 
the  typical  methods  of  these  banks.  Many  big  banks  and 
banking  houses  issue  booklets  explaining  the  use  of  the 
bankers'  acceptance. 

Typical  illustrations  of  bankers'  foreign  acceptances,  as 
cited  by  a  representative  New  York  national  bank,  show- 
ing also  the  connection  of  an  American  banking  house  lo- 
cated in  a  foreign  country  with  a  New  York  company  which 
handles  acceptance  discounts,  are  given  herewith.  Below 
are  copies  of  such  bills,  and,  to  illustrate  the  matter 
clearly,  we  will  follow  them  through  from  the  beginning 
until  they  are  paid: 

Acceptance  Covering  Exports 

Bill  of  Exchange  for  $3,749.60. 

New  York,  January  25,  19 — . 
Ninety  days  after  sight  of  this  First  of  Exchange   (Second 
unpaid)   pay  to  the  order  of  International  Banking  Corporation 

Three  Thousand  Seven  Hundred  Forty-nine  60/100 

Dollars  United  States  Currency  Vahae  received  and  charge  to  ae- 

144 


BANKERS'  ACCEPTANCE  METHODS    145 

count  of  letter  of  Credit  I.  B.  C.  16/8721.  Two  automobiles  S/S 
Kandahar  to  India. 

(Signed)     John   Jones  &  Co.,  Inc., 
John  Jones,  President. 

To  the  National  City  Bank  of  I^ew  York 
New  York  City 

Across  tlie  face  of  the  draft  is  stamped : 

Accepted 

January  25,  19 — 

The  National  City  Bank  of  New  York 

New  York 

and  it  is  signed  by  one  of  the  vice-presidents  or  the  cash- 
ier of  the  bank.  The  draft  is  indorsed  on  the  back  by  the 
International  Banking  Corporation. 

In  this  case  some  one  in  India  wanted  to  purchase  two 
automobiles  from  Jones,  who  was  unwilling  to  ship  them 
without  first  receiving  his  money.  The  Indian  went  to  his 
local  bank,  in  this  case  probably  the  International  Bank- 
ing Corporation,  and  arranged  with  it  to  open  a  credit  with 
the  National  City  Bank  against  which  Jones  could  draw 
at  90  days'  sight.  This  being  arranged,  The  National  City 
Bank  advised  Jones  that  the  credit  had  been  established 
and  he  shipped  his  automobiles.  Since  the  draft  is  made 
payable  to  the  International  Banking  Corporation,  Jones 
drew  his  draft  as  above  and  to  it  attached  the  bill  of  lad- 
ing and  other  shipping  documents  and  sent  them  all  to  the 
International  Banking  Corporation.  The  International 
Banking  Corporation  in  turn  presented  all  documents  to 
The  National  City  Bank,  where,  everything  being  in  or- 
der, the  draft  was  accepted  and  returned  to  the  Interna- 
tional Banking  Corporation,  the  documents  being  detached 
and  forwarded  to  the  Indian  bank  arranging  the  credit. 
The  International  Banking  Corporation  discounted  the 
draft  for  Jones,  who  thereby  received  the  cash  for  his 


146  ACCEPTANCES 

automobiles.  The  International  Banking  Corporation  sold 
the  bill  to  the  National  City  Company,  thus  getting  their 
money  back,  and  the  National  City  Company  sold  it  to  an 
institution  looking  for  a  high-grade  short-term  investment. 

In  the  meantime,  the  automobiles  are  presumably  on 
their  way  to  India,  where  they  will  probably  arrive  be- 
fore the  90  days  have  elapsed.  Shortly  before  the  90  days 
are  up  the  Indian  merchant  places  his  bank  in  funds  with 
which  to  meet  the  bill  and  they  in  turn  transfer  it  to  the 
National  City  Bank.  At  maturity  the  holder  of  the  draft 
presents  it  to  the  National  City  Bank  and  receives  payment 
for  the  full  face  amount. 

It  will  be  noticed  that  the  National  City  Bank  was  not 
using  any  of  its  funds  during  this  whole  transaction;  in 
fact,  it  received  a  commission  for  extending  its  credit. 
Jones  received  payment  for  his  automobiles  as  soon  as 
they  were  shipped.  The  International  Banking  Corpora- 
tion got  its  money  back  when  it  sold  the  bill  to  the  National 
City  Company,  which  in  turn  was  reimbursed  when  the 
bill  was  sold  to  the  investor.  Also  the  Indian  will  prob- 
ably have  his  automobiles  before  being  called  upon  to  pay 
his  local  bank,  which  in  turn  will  transfer  the  funds  re- 
ceived from  hinp.  to  the  National  City  Bank. 

AccEPTxVNCE  Covering  Imports 
Bahia,  the  5tJi  January,  19 — .  $18267.68 

At  ninety  days'  sight  pay  this  First  of  Exchange  (second  and 
third  unpaid)  to  the  order  of  the  British  Bank  of  South  America, 
Limited,  Eighteen  thousand  two  hundred  and  sixty-seven  dollars 
and  sixty-eight  cents,  Value  of  same  drawn  under  Letter  of 
Credit  date  23/11/ —  against  shipment  of  1,500  bags  cocoa  per 
S.  S.  Raphael  to  New  York,  account  of  H.  H.  Harris. 

To  the  National  City  Bank  of  New  York 
New  York. 

The  bill  is  accepted  just  as  in  the  first  example. 


BANKERS'  ACCEPTANCE  METHODS    147 

The  following  indorsements  are  on  the  back  of  the  draft : 

The  British  Bank  of  South  America,  Ltd. 
The  Bank  of  New  York,  N.  B.  A.  Attorney 

F.  A.  Klingsmith, 

Assistant  Cashier. 

Indorsement  guaranteed 

The  Bank  of  New  York,  N.  B.  A., 
F.  A.  Klingsmith, 
Assistant  Cashier. 

In  this  case,  Harris  arranged  with  the  National  City 
Bank  to  permit  Smith  to  draw  on  it.  The  credit  being  ar- 
ranged, the  bank  notified  Smith  of  that  fact,  either  by 
letter  or  cable,  depending  upon  the  urgency  of  the  mat- 
ter. Smith,  upon  shipping  his  cocoa,  sold  his  draft  to  the 
British  Bank  of  South  America,  Ltd.,  at  the  prevailing 
rate  for  dollar  exchange  in  Bahia.  The  British  bank  for- 
warded the  draft  and  documents  to  its  New  York  cor- 
respondent, the  Bank  of  New  York,  with  instructions  to 
discount  it  in  the  open  market  after  it  was  accepted.  When 
accepted,  the  documents  were  detached  by  the  National 
City  Bank  and  the  acceptance  returned  to  the  bank  of 
New  York,  who  sold  it  to  the  City  Company.  Harris's 
credit  standing  being  of  the  highest,  the  shipping  docu- 
ments covering  the  cocoa  were  probably  turned  over  to 
him,  thus  giving  him  90  days  in  which  to  sell  the  cocoa 
and  place  himself  in  funds  with  which  to  pay  the  bill  at 
maturity.  If  his  credit  is  not  good  enough,  the  bank  may 
retain  the  documents  until  the  maturity  of  the  draft  or 
release  them  only  upon  deposit  of  approved  collateral. 

Since  the  acceptor  is  primarily  liable  at  maturity,  the 
investor  holding  these  bills  has  an  obligation  of  the  Na- 
tional City  Bank.  This  obligation  is  exactly  the  same  as 
a  cashier's  check  of  that  Bank,  except  it  is  payable  at  a 
definite  date  in  the  future  instead  of  on  demand.     In  ad- 


148 


ACCEPTANCES 


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Trade 

dition  he  has  the  liability  of  the  indorsers  and  of  the  draw- 
ers of  the  drafts.  The  purchaser  of  the  acceptance  does 
not  secure  the  shipping  documents  or  any  title  to  the  goods 
against  which  the  drafts  are  drawn. 

The  specimen  bills  shown  in  Figures  15  and  16 
are  from  forms  actually  used  by  a  prominent  banking 
house  which  describes  them  as  follows: 

It  is  not  necessary  that  the  bills  exactly  follow  these  forms. 

On  the  bill  drawn  in  a  foreign  country  the  nature  of  the  mer- 
chandise and,  very  often,  the  steamer's  name  and  the  markings 
are  included  in  the  description  of  the  articles  against  which  the 


BANKERS'  ACCEPTANCE  METHODS 


149 


bill  is  drawn;  the  only  purpose  of  this  is  to  make  it  easy  for  the 
accepting  bank  to  place  the  draft  against  the  proper  credit.  The 
name  of  the  firm — in  this  case,  "Blank,  Doe  and  Jones," — usually 
represents  the  original  purchaser  or  discounter  of  the  bill.  This 
purchaser  is  almost  invariably  either  a  bank  or  a  discounting 
house. 

On  the  bill  drawn  locally,  the  maker  signs  the  bill  and  draws 
it  under  a  credit  which  John  Doe  and  John  Smith  Co.  have 
arranged  with  the  bank.  The  maker  has  this  accepted  and  either 
sells  or  discounts  it  and  thereby  receives  payment  for  the  "Dye- 
stuffs"  sold  to  John  Doe  and  John  Smith  Co.  direct,  or,  if 
the  credit  is  a  guaranteed  one,  to  the  guarantors  for  settlement. 


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Figure  17,    Bankers'  Acceptance  Form  for  Domestic  Trade 


Method  of  a  Western  Bank  in  Handling  Bankers'  Do- 
mestic Acceptances. — Practically  all  commercial  banks  in 
the  United  States  have  forms  and  explanatory  data  on 
bankers'  domestic  acceptances  and  letters  of  credit.  The 
national  bank  issuing  the  acceptance  form  illustrated  in 
Figure  17  describes  the  handling  of  it  through  the  bank 
as  follows: 

All  drafts  drawn  on  us  for  acceptance  when  received  are 
handed  to  the  department  which  takes  care  of  this  business. 

Examination  of  documents,  such  as  trust  receipts  and  guar- 
antees, is  made  and  if  the  necessaiy  revenue  stamps  are  not 
already  attached  to  draft  they  are  placed  thereon  by  us. 

The  draft  is  then  duly  accepted  in  accordance  with  agreement, 
the  acceptance  being  signed  by  one  of  our  Vice-Presidents. 

The  maturity  is  ascertained  and  the  proceeds,  less  discount, 


150 


ACCEPTANCES 


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Figure  18. 


Bankers'  Acceptance  Form  Designed  by  the  Ameri- 
can Acceptance  Council 


are  credited   to  drawer's   account   and   advice  forwarded  giving 
full  particulars  of  the  transaction. 

A  complete  record  of  the  document  is  then  made,  as  follows : 


Date  received 

Drawer 

Date  accepted 

Date  due 

Rate  of  discount 

When  payable 

Number,  if  any 


Date  drawer  to  be  notified  of 

maturity 
Date  of  draft 
Time 
Amount 

Amount  of  discount 
Date  retired 


Memo,  of  any  special  facts,  such  as  drawn  under  special  letter 
of  credit  or  any  special  agreements  stated  in  the  trust  receipt. 
Also,  if  acceptance  is  sold,  to  whom. 

This  record  is  kept  on  a  columnar  ruled  sheet  but  is  not  spe- 
cially prepared  for  this  purpose. 

Proper  entries  are  made  in  respective  accounts,  showing  the 
customer's  liability  and  our  liability  account  of  acceptances. 

Ten  days  before  maturity  the  drawers  are  notified  by  mail 
of  the  due  date,  and  requested  to  place  current  funds  with  us  in 
sufficient  time  to  take  care  of  the  indebtedness.  Two  days 
before  maturity  is  the  usual  time  for  receipt  of  such  funds. 

When  acceptance  matures  and  payinents  are  received  by  us 
the  documents  are  cancelled  and  retained  in  our  files.  The 
entries  made  in  the  respective  accounts  showing  customer's  and 
our  liability  are  then  reversed. 


BANKERS'  ACCEPTANCE  METHODS    151 

How  a  Merchant  Can  Use  Domestic  Bankers'  Accept- 
ances.— A  description  by  a  prominent  Wall  Street  com- 
mercial-paper house,  Bernard,  Scholle  &  Company,  of  how 
the  merchant  can  use  banker's  domestic  acceptances  in  his 
business  is  as  follows: 

Smith  &  Co.  are  manufacturers  of  shoes  in  St.  Louis.  They 
buy  leather  from  Brown  &  Co.,  of  Boston,  and  at  present  when 
they  desire  accommodation  to  finance  purchases  of  leather,  bor- 
row on  their  promissory  note,  from  their  own  bank,  the  River 
National  Bank  of  St.  Louis,  such  funds  as  they  require.  The 
rate  may  vary,  but  at  present  will  be  between  4^/^  and  6  per  cent 
per  annum,  counting-  in  the  commissions  paid,  if  any. 

They  decide  to  use  acceptances  in  place  of  notes,  and  find 
various  methods  available.  Acceptances  can  be  used  to  finance 
either  purchases  or  sales.     We  shall  consider  purchases  first. 

First  method :  The  next  time  they  require  an  advance  to  finance 
a  purchase  of  leather  (say  $50,000)  from  Brown  &  Co.,  Smith 
&  Co.  apply  to  the  River  National  Bank  for  an  acceptance  credit 
of  $50,000." 

At  the  same  time  Smith  &  Co.  sign  the  regular  form  of 
acceptance  agreement  which  the  banks  use,  which  states  all  the 
conditions  of  the  credit,  and  further  contains  an  undertakmg  on 
the  part  of  Smith  &  Co.  to  place  the  bank  in  funds  one  to  two 
days  before  the  maturity  of  the  acceptances  which,  of  course, 
the  bank  will  be  obliged  to  pay  at  maturity.  Smith  &  Co.  obtain 
these  funds  to  meet  their  obligation  through  the  sale  of  this 
merchandise  so  that  the  paper  is  really  self-liquidating. 

When  Smith  &  Co.  receive  the  bill  of  lading  and  the  bill  for 
the  goods  from  Brown  &  Co.,  they  draw  on  the  River  National 
Bank  for  the  requisite  amount  and  present  the  draft  and  bill  of 
lading  to  the  bank,  together  with  sufficient  assurance  to  satisfy 
the  bank  that  the  proceeds  of  the  bill  will  be  used  to  pay  for 
the  goods  in  question.  (This  last  is  required  by  a  ruling  of  the 
Federal  Reserve  Board.)  The  bank  will  then  accept  the  draft 
and  the  acceptance  will  thereupon  be  eligible  for  rediscount  at 
the  Federal  Reserve  Banks  (when  it  has  not  over  90  days'  sig'ht 
to  run).  Smith  &  Co.  can  then  either  discount  this  acceptance 
with  the  River  National  Bank  or  sell  it  in  the  open  market.  In 
either  case,  they  must  remit  the  proceeds  to  Brown  &  Co.  If 
this  payment  is  made  promptly,  Smith  &  Co.  will  secure  any 
cash  discount  allowed  by  the  latter. 


152 


ACCEPTANCES 


At  the  time  of  making  the  acceptance  or  as  soon  as  Smith 
wants  the  goods,  the  bank  will  return  the  bill  of  lading  to  Smith 
&  Co.,  either  on  an  open  credit  or  against  a  trust  receipt,  accord- 
ing to  the  credit  of  Smith  &  Co.  and  the  terms  of  acceptance 
agreement.  There  are  various  forms  of  trust  receipts  to  suit 
various  conditions.  (A  sample  form  a^Dplicable  to  one  set  of 
conditions  is  hereto  annexed.) 

The  cost  of  this  money  to  Smith  &  Co.  will  be  the  discount  plus 
the  acceptance  charge  of  the  accepting  bank,  say  i/4  of  1  per 
cent  fiat,  amounting  on  ninety-days'  paper  to  a  rate  of  1  per 
cent  per  annmn.  The  rate  of  discount  of  the  bank's  acceptance 
to-day  should  be  between  3  per  cent  and  SV^  per  cent,  depending 
on  the  standing  of  the  accepting  bank,  so  that  the  total  cost  of 
the  money  to  Smith  &  Co.  would  be  between  4  per  cent  and 


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pay  to  wk  Older  of 


41/4  per  cent  as  against  from  414  to  6  per  cent  which  their 
money  cost  them  under  the  old  system  of  single  name  paper. 

That  is,  the  merchant  who  pays  only  4%  per  cent  on  his  notes 
to-day  can  get  the  money  through  acceptances  at  a  net  cost 
of  about  4'  per  cent,  and  the  merchant  who  pays  5  per  cent  or  6 
per  cent  on  his  notes  can  get  the  money  through  acceptances  at 
41/4  to  41/^  per  cent.    The  large  saving  here  is  apparent. 

A  second  possible  method  of  doing  this  business  is  the  method 
which  has  been  used  for  ver}'  many  years  in  financing  business 
with  foreign  countries,  and  is  considered  preferable  by  the  Fed- 
eral Reserve  Board  for  domestic  business  also.  Under  this 
method,  the  draft  would  be  drawn  by  Brown  &  Co.  instead  of 
by  Smith  &  Co.  Smith  &  Co.  would  apply  to  the  River  National 
Bank  for  an  acceptance  credit  of  $50,000  in  favor  of  Brown  & 
Co.,  the  credit  to  be  against  90-days'  sight  draft  with  two  copies 
of  bill  of  lading  attached,  insurance  certificate  attached,  and  any 
other  documents  that  Smith  &  Co.  may  desire.    The  bank  immedi- 


BANKERS'  ACCEPTANCE  METHODS    153 

ately  notifies  Brown  &  Co.  that  it  has  opened  a  credit  for  Smith 
&  Co.  in  favor  of  Brown  &  Co.  for  the  sum  of  $50,000,  under 
specified  conditions.  (A  form  of  such  acceptance  agreement  is 
appended  herewith:  Credit  No.  2117.) 

Various  forms  of  agreement. — It  should  be  noted  that  a  form 
which  is  correct  in  one  case  may  be  deficient  in  another.  These 
forms  are  given  merely  as  illustrations  and  should  not  be  copied 
for  use.  Banks  almost  invariably  consult  their  own  counsel  before 
deciding  upon  the  form  of  acceptance  agreement,  trust  receipt,  etc. 

Commercial  Letter  of  Credit 

Credit  No.  2117,  Eiver  National  Bank  of  St.  Louis,  Mo., 

March  10,  19—. 
Messrs,  Brown  &  Co., 

Boston,  Mass. 
Gentlemen: — 

We  hereby  authorize  you  to  draw  on  Eiver  National  Bank  of  St. 
Louis,  Missouri,  for  account  of  Messrs.  Smith  &  Co.,  of  St.  Louis, 
up  to  an  aggregate  amount  of  fifty  thousand  dollars,  available  by 
your  drafts  at  ninety  days'  sight  against  shipment  of  first  grade 
sole  leather  to  St.  Louis,  insurance  effected  in  Boston. 

Bill  of  lading  for  such  shipments  must  be  made  out  to  the  order 
of  the  Eiver  National  Bank  of  St.  Louis,  unless  otherwise  specified 
in   this   credit. 

Invoice  and  one  bill  of  lading  must  be  sent  by  the  bank  or  banker 
negotiating  drafts  direct  to  the  Eiver  National  Bank  of  St.  Louis, 
Missouri. 

The  remaining  documents  must  accompany  the  drafts  drawn  on 
Eiver  National  Bank  of  St.  Louis,  Missouri.  The  amount  of  each 
draft  negotiated,  together  with  date  of  negotiation,  must  be  indorsed 
on  back  hereof. 

We  hereby  agree  with  bona  fide  holders  that  all  drafts  drawn  by 
virtue  of  this  Credit  and  in  accordance  with  the  above  stipulated 
terms  shall  meet  with  due  honor  upon  presentation  at  the  office  of 
Eiver  National  Bank  of  St.  Louis,  Missouri,  if  drawn  and  nego- 
tiated,prior  to  July  10,  19 — . 

Eiver  National  Bank  of  St.  Louis, 

Signed Signed 

'Vice-President.  Cashier. 

N.B. — Drafts  drawn  under  this  credit  must  state  that  they  are 
"drawn  under  letter  of  Credit  No.  2117  Dated,  March  10,  19—." 

At  the  same  time  Smith  &  Co.  sign  the  regular  form  of  accept- 
ance agreement,  which  the  banks  use  for  such  purpose,  containing, 
among  other  things,  an  engagement  on  the  part  of  Smith  &  Co. 
to  place  the  bank  in  funds  one  or  two  days  before  the  maturity 


154  ACCEPTANCES 

of  acceptance.  (A  form  of  such  acceptance  agreement  is  ap- 
pended.) 

Form   of   Acceptance   Agreement   Between   Customer  and 

Bank 

To  the 

Eiver  National  Bank  of  St.  Louis 

St.  Louis,  Mo., 19 — . 

Gentlemen : 

Having  received  from  you   the   letter  of  credit  on  

account  of  which  a  true  copy  is  on  the  other  side,  we  hereby  agree  to 
its  terms,  and  in  consideration  thereof  we  agree  with  you  to  provide 
in  St.  Louis,  two  days  previous  to  the  maturity  of  the  bills  drawn 
in  virtue  thereof,  sufficient  funds  in  cash,  to  meet  the  payment  of 

the  same  with  per  cent  commission,  and  we  undertake 

to  insure  at  our  expense,  for  your  benefit,  against  risk  of  fire  or  loss 
in  transit,  all  property  purchased  or  shipped  pursuant  to  said  letter 
of  credit,  in  companies  satisfactory  to  you. 

We  agree  that  the  title  to  all  property  which  shall  be  purchased 
or  shipped  under  the  said  credit,  the  bills  of  lading  thereof,  the 
policies  of  insurance  thereon  and  the  whole  of  the  proceeds  thereof, 
shall  be  and  remain  in  you  until  the  payment  of  the  bills  referred 
to  and  of  all  sums  that  may  be  due  or  that  may  become  due  on 
said  bills  or  otherwise,  and  until  the  payment  of  any  and  all  other 
indebtedness  and  liability  now  existing  or  now  or  hereafter  created 
or  incurred  by  us  to  you  on  any  and  all  other  transactions  now  or 
hereafter  had  with  you,  with  authority  to  take  possession  of  the 
same  and  to  dispose  thereof  at  your  discretion  for  your  reimburse- 
ment as  aforesaid,  at  public  or  private  sale  (with  the  right  on  your 
part  to  purchase  at  any  such  sale),  without  demand  or  notice,  and 
to  charge  all  expenses,  including  commission  for  sale  and  guarantee. 

Should  the  market  value  of  said  merchandise  in  St.  Louis,  either 
before  or  after  its  arrival,  fall  so  that  the  net  proceeds  thereof  (all 
expenses,  freight,  duties,  etc.  being  deducted)  would  be  insufficient 
to  cover  your  advance  there-against  with  commission,  and  interest, 
we  further  agree  to  give  you  on  demand  any  further  security  you  may 
require,  and  in  default  thereof  you  shall  be  entitled  to  sell  said  mer- 
chandise forthwith,  or  to  sell  "to  arrive,"  irrespective  of  maturity 
of  the  acceptances  under  the  Credit,  we  being  held  responsible  to 
you  for  any  deficit,  which  we  bind  and  oblige  ourselves  to  pay  you 
in  cash  on  demand. 

In  case  we  should  hereafter  desire  to  have  this  credit  confirmed, 
altered  or  extended  by  telegraph  (which  will  be  at  our  expense  and 
risk),  we  hereby  agree  to  hold  you  harmless  and  free  from  respon- 
sibility from  errors  in  telegraphing,  whether  on  the  part  of  your- 
selves, or  your  agents,  here  or  elsewhere,  or  on  the  part  of  the 
telegraph  companies. 

This  obligation  is  to  continue  in  force,  and  to  be  applicable  to  all 
transactions,  notwithstanding  any  change  in  the  composition  of  the 
firm  or  firms,  parties  to  this  contract  or  in  the  use  of  this  credit, 


BANKERS'  ACCEPTANCE  METHODS    155 

whether  such  change  shall  arise  from  the  accession  of  one  or  more 
new  partners,  or  from  the  death  or  secession  of  any  partner  or 
partners. 

It  is  understood  and  agreed  that  if  the  documents  representing 
the  property  for  which  the  said  credit  has  been  issued  are  surren- 
dered under  a  trust  receipt,  collateral  security  satisfactory  to  the 
Biver  National  Bank,  such  as  stocks,  bonds,  warehouse  receipts  or 
other  security,  shall  be  given  to  the  Kiver  National  Bank,  to  be  held 
until  the  terms  of  the  credit  have  been  fully  satisfied  and  subject 
in  every  respect  to  the  conditions  of  this  agreement. 

It  is  further  understood  and  agreed  in  the  event  of  any  sus- 
pension or  failure,  or  assignment  for  the  benefit  of  creditors  on  our 
part,  or  on  the  non-payment  at  maturity  of  any  acceptance  made  by 
us,  or  of  the  non-fulfillment  of  any  obligation  under  said  credit 
or  under  any  other  credit  issued  by  the  River  National  Bank  of 
St.  Louis  on  our  account,  or  of  any  indebtedness  or  liability  on  our 
part  to  you,  all  obligations,  acceptances,  indebtedness  and  liabilities 
whatsoever  shall  thereupon,  at  your  option  then  or  thereafter  exer- 
cised, without  notice,  mature  and  become  due  and  payable. 

We  further  agree  that  should  we  consent  to  any  overdrafts  under 
said  letter  of  credit  or  authorize  payment  or  acceptance  of  bills; 
drawn  thereunder  with  irregular  documents  attached  thereto,  this 
agreement  shall  be  fully  binding  upon  us  with  regard  to  such  over- 
drafts and  other  bills  and  the  documents  connected  therewith  and 
our  obligation  to  pay  to  you  the  amount  thereof  and  your  title  to 
the  property  purchased  or  shipped  in  connection  with  said  bills  and 
the  bills  of  lading  therefor  and  the  policies  of  insurance  thereon 
and  all  the  proceeds  thereof,  to  all  intents  and  purposes  as  if  said 
bills  had  been  drawn  and  negotiated  in  strict  conformance  with  said 
letter  of  credit.  And  we  further  agree  to  hold  you  in  no  wise  ac- 
countable for  any  acts  of  any  person  or  persons  which  may  be  pre- 
judicial to  the  documents  accompanying  the  bills  drawn  under  the 
letter  of  credit  referred  to,  and  agree  that  this  obligation^  shall  re- 
main in  full  force  and  shall  in  no  wise  be  affected  by  the  invalidity 
of  or  any  imperfection  in  such  documents. 

We  assume  all  risk  of  the  acts  of  the  users  of  said  letter  of  credit 
as  our  agents  m  all  respects;  and  we  agree  that  you  shall  not  be 
held  responsible  for  the  correctness,  genuineness,  or  validity  of  any 
documents  mentioned  in  or  provided  for  by  said  letter  of  credit,  or 
for  any  non-conformance,  fraud,  error,  or  falsity  therein  or  for  the 
description,  quantities,  quality,  or  value  of  the  property  represented 
thereby,  or  for  breach  of  any  contract  between  users  of  said  letter 
of  credit  and  ourselves  or  for  any  error  or  delay  in  telegraphing 
or  cabling  at  our  request  in  connection  with  said  letter  of  credit  or 
any  transactions  thereunder,  and  that  the  same  shall  not  be  any 
defense  against  our  obligation  under  this  agreement,  and  that  we 
will  indemnify  you  from  and  against  all  loss  and  liability  resulting 
therefrom, 

(Signature)  

Upon  receipt  of  the  above-mentioned  lettei'  of  credit  from  the 
bank,  Brown  &  Co.  assemble  the  goods  for  shipment,  obtain  their 


156  ACCEPTANCES 

bills  of  lading  from  the  railroad,  obtain  their  certificate  of  insur- 
ance from  the  insurance  brokers,  and  the  other  necessary  papers, 
and  are  thereupon  able  to  pay  themselves  by  means  of  drawing 
a  draft  on  the  St.  Louis  bank  at  90  days'  sight  and  attaching  the 
required  documents.  This  prompt  payment  will,  of  course,  entitle 
Smith  &  Co.  to  the  cash  discount  granted  by  Brown  &  Co. 
Brown  &  Co.  may  either  discount  this  at  their  bank,  crediting 
the  proceeds  to  the  account  of  Smith  &  Co.,  or  they  can  forward 
the  draft  with  documents  to  an  agent  for  acceptance  and  sale. 
The  agent  will  then  present  the  draft  to  the  River  National  Bank 
and,  when  accepted,  will  sell  the  same  in  the  oj^en  market,  remit- 
ting the  proceeds  to  Brown  &  Co.,  who  will  credit  the  same  to 
the  account  of  Smith  &  Co.  The  bill  of  lading  will  be  delivered 
to  the  bank  at  the  time  of  aece^Dtance  and  will  be  delivered  by 
the  bank  to  Smith  &  Co.,  against  the  trust  receipt  or  upon  open 
credit  as  outlined  above.  The  cost  of  the  money  under  this 
method  to  Smith  &  Co.  would  be  the  same  as  outlined  above. 

Under  this  second  method  it  will  be  noticed  that  while  Brown 
&  Co.  receive  immediate  payment  for  their  goods,  and  do  not 
extend  credit  in  that  way,  they  remain  contingently  liable  as 
drawers  of  the  bills,  and  thus  lend  the  credit  of  their  name  until 
the  bills  are  paid. 

To  make  bankers'  acceptance  eligible  for  rediscount  by  a  Fed- 
eral Reserve  Bank,  when  the  accepting  banker  is  not  a  member 
of  the  Federal  Reserve  System,  the  following  forms  of  certificate 
should  be  aflBxed  by  rubber  stamp  by  state  bank,  banker,  or  a 
trust  company,  for  the  purpose  of  showing  that  an  acceptance 
is  eligible  for  rediscount  at  the  Federal  Reserve  Banks. 

Indorsements  on  Foreign  and  Domestic  Bills 

(On  Export  or  Import  Bill) 

This  acceptance  is  based  upon  a  transaction  involving  the  ex- 
portation or  the  importation  of  merchandise. 


(Name  of  Acceptor) 

(On.  Domestic  Shipment  Bill) 

At  the  time  of  acceptance,  this  bill  was  secured  by  shipping  docu- 
ments evidencing  the  domestic  shipment  of  goods  against  which  it 
was  drawn. 


(Name  of  Acceptor) 


BANKERS'  ACCEPTANCE  METHODS    157 

{On  Warehouse  Bill) 

At  the  time  of  acceptance,  this  bill  was  secured  by  documents, 
conveying  or  securing  title,  covering  readily  marketable  staples 
stored  in  the  United  States. 


(Name  of  Acceptor) 

IVIany  modifications  of  the  foregoing  forms  and  meth- 
ods used  by  other  banking  houses  might  be  quoted,  but 
bankers  will  do  well  to  study  carefully  and  use  individ- 
ual judgment  and  advice  in  their  particular  cases.  The 
general  methods  will  be  indicated  by  the  foregoing  pro- 
cedure. 


CHAPTER  XVI 

RECORDS   OF   ACCEPTANCES   KEPT   WITHIN   A  BANKING   INSTITUTION 

Methods  of  Various  Banks  in  Handling  Trade  Accept- 
ances.— By  checking  up  the  methods  used  by  national 
banks,  trust  companies,  and  banking  houses  throughout 
the  United  States  and  their  handling  of  acceptance  rec- 
ords through  their  banks,  it  has  been  found  that  they  have 
not  had  trade  acceptances  coming  through  their  insti- 
tutions in  sufficient  quantities  to  warrant  specially  segre- 
gated records.  In  fact,  for  several  years  banks,  except  a 
few  of  the  largest,  have  reported  that  they  handle  the 
trade  acceptances  that  they  receive  for  collection  or  dis- 
count by  the  usual  methods  employed  for  notes  or  other 
commercial  paper  which  their  customers  offer  them. 

Many  of  these  bankers  have  suggested  that  later,  when 
acceptances  become  more  numerous,  they  will  prepare  and 
use  a  method  of  record  to  eliminate  multiplication  of  de- 
tail. To  illustrate,  in  1918  one  of  the  leading  banks  of  the 
West,  which  handled  a  substantial  amount  of  acceptances, 
reported  the  mechanical  details  of  handling  acceptances 
practically  as  follows: 

Acceptances  are  taken  from  the  customer,  discounted  at  rate 
of  interest  agreed,  to  which  is  added  any  collection  charge,  in 
accordance  with  Clearing-House  rules,  and  the  proceeds  credited 
to  customer's  account. 

The  item  is  then  registered  in  a  record,  showing  to  whom  sent 
and  from  whom  received,  and  ten  days  prior  to  maturity  for- 
warded for  collection.  It  is  also  the  custom  to  add  to  interest 
charge  the  time  in  transit  necessary  to  return  the  funds  to  our 
bank. 

158 


BANK'S  RECORDS  OF  ACCEPTANCES   159 

The  item  is  forwarded  for  collection  as  we  would  send  any 
other  draft  but  is  not  handled  in  any  sense  as  a  cash  transaction. 

Advices  from  a  Boston  bank,  handling  a  moderate 
volume  of  acceptances,  stated: 

I  know  of  no  change  in  the  situation  since  I  wrote  you  a  year 
ago.  While  the  volume  of  our  trade  acceptances  has  increased, 
it  has  not  yet  become  sufficiently  large  to  warrant  the  installation 
of  a  specific  system  for  handling  them.  I  think  this  is  the 
situation  with  other  Boston  banks.  Likewise,  with  bankers'  ac- 
ceptances we  have  developed  no  new  ideas. 

A  Cincinnati  national  bank  which  handles  many  ac- 
ceptances made  the  statement  that  they  had  no  special 
system  for  handling  trade  acceptances  but  put  them 
through  the  loan  registers  just,  as  they  would  all  notes. 
They  also  stated  that  they  are  looking  forward  to  the  day 
when  the  volume  of  trade  acceptances  may  be  large  and 
they  have  considered  two  plans  to  handle  such  an  increase. 
One  plan  is  to  furnish  the  customer  with  a  loose-leaf  ledger 
sheet  giving  a  detailed  description  of  the  acceptances  dis- 
counted (this  ledger  sheet  to  be  used  as  the  bank's  per- 
manent record),  the  customer  to  fill  in  the  sheet  and  thus 
save  the  bank  that  much  clerical  detail.  The  second  plan 
is  intended  to  save  time  and  labor  in  calculating  interest 
and  would  be  operated  in  the  following  way.  No  inter- 
est is  calculated  when  the  acceptances  are  brought  in.  A 
daily  record  is  made  of  the  total  amount  of  a  customer's 
unpaid  acceptances  and  on  the  total  thus  shown  interest 
at  the  current  rate  is  figured  daily  in  much  the  same  way 
as  interest  is  figured  on  a  customer's  daily  deposit  bal- 
ance. This  bank  has  not  worked  out  the  details  on  these 
plans  and  will  not  do  so  until  the  volume  of  acceptances 
justifies  adopting  a  new  system. 

A  Detroit  bank  well  posted  on  acceptance  procedure  has 
stated  that  their  volume  of  trade  acceptances  has  not  been 


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BANK'S  RECORDS  OF  ACCEPTANCES   161 

sufficient  to  necessitate  devising  the  specific  forms  or  rec- 
ords for  handling  them  through  their  discount  cage.  They 
stated  that  possibly  acceptances  would  be  eventually 
handled  as  something  of  a  cross  between  a  check  and  note, 
taking  from  the  note  its  characteristics  of  futurity  and 
from  the  check  those  of  a  demand  obligation  when  the  ma- 
turity date  arrived.  In  this  case  they  suggested  that  a 
tickler  system  should  be  used  to  group  maturity  dates, 
similar  to  the  present  method  of  tickling  notes.  They 
also  predicted  that  the  acceptances  would  be  handled  in 
a  manner  similar  to  the  present  method  of  handling  checks, 
as  the  ruling  in  most  states  allows  charging  up  the  ac- 
ceptance against  an  account,  and  that  these  methods  would 
make  comparatively  simple  the  forwarding  and  collection 
of  maturing  acceptances. 

The  discount  companies  do  not  keep  any  special  rec- 
ords for  trade  acceptances,  as  they  are  not  handling  them 
in  large  numbers.  They  deal  principally  with  the  trade 
acceptances  of  firms  which,  in  many  cases,  are  doing  or 
have  done  more  or  less  of  a  banking  business,  or  which  are 
known  and  file  statements  with  member  banks  or  with  the 
Federal  Reserve  Bank,  thus  making  the  rediscount  of  their 
acceptances  more  easy  and  facilitating  the  handling  of 
their  paper  in  the  open  market. 

Forms  for  Handling  Trade  Acceptances  by  a  Western 
Bank. — A  description  of  methods  and  filled-in  record  sheets 
used  by  the  Bank  of  California,  of  Seattle,  Washington, 
which  handles  a  considerable  volume  of  trade  acceptances, 
follows : 

Figure  19  illustrates  our  method  of  handling  items  of  large 
amounts  and  where  only  a  few  items  are  discounted.  These  are 
handled  through  our  books  the  same  as  any  discounted  paper. 

Figure  20  covers  the  account  of  a  firm  discounting  a  great 
many  acceptances  of  small  amounts.  We  rim  these  items  through 
our  ledger  as  totals  for  each  day's  transactions.  The  sepai'ate 
items  are  entered  in  our  discount  register,  but  are  not  put  in 


162  ACCEPTANCES 

the  diary  for  due  date,  being  filed  as  to  due  date  in  the  "XYZ 
Co."  file  of  discounts  which  is  kept  in  "Due  To-day"  and  is 
examined  every  morning  for  maturities. 

For  small  acceptances  we  make  a  minimum  charge  of  25  cents 
each,  which  does  not  include  any  charge  that  may  arise  through 
collection ;  we  debit  the  customers'  accounts  with  any  expense 
that  we  are  out  in  obtaining  payment. 

Work  on  Records  by  a  Committee  of  the  American 
Bankers'  Association. — Although  many  prominent  bankers 
have  considered  and,  to  a  certain  extent,  worked  on  the 
record  systems,  there  has  not  been  any  general  consen- 
sus of  agreement  as  to  the  most  practical  plans.  Some 
time  ago  a  committee  of  the  American  Bankers'  Associa- 
tion went  carefully  over  the  methods  of  making  records 
and  devised  some  unique  and  commendable  suggestions,  to 
be  further  acted  upon  by  the  committee  and  the  associa- 
tion in  general.  As  these  plans  were  never  finally  ap- 
proved or  disapproved,  they  are  quoted  herein  merely  as 
suggestions  for  bankers  needing  more  detailed  plans  for 
hvandling  trade  acceptances,  or  for  students  of  the  subject, 
to  consider  and  elaborate.  That  full  agreement  with  these 
plans  was  not  obtained  is  evident  from  comments  on  their 
details  from  a  well  posted  Boston  banker,  who  suggests 
sundry  changes.  At  the  same  time  other  suggestions  by 
a  Cincinnati  banker,  quoted  heretofore,  might  work  as 
remedies  to  this  criticism,  in  that  the  balances  might  be 
considered  daily  and  interest  rates  figured  thereon  as  are 
the  balances  on  customers'  accounts,  which  are  credited  at 
current  daily  rates.  The  first  banker  stated  that  these 
proposals  were  admirable  in  many  ways,  but  that  the  sub- 
division would  not  be  practicable.  He  objected  to  the 
system  of  handling  the  trade  acceptances  as  a  whole,  with 
interest  the  same  as  on  a  demand  loan,  since,  when  a  bank 
rate  fluctuated,  the  bank  would  not  agree  to  a  permanent 
rate  for  a  long  period.     He  also  questioned  the  charge  of 


BANK'S  RECORDS  OF  ACCEPTANCES    163 

interest  by  the  month  on  the  daily  balances  for  the  trade 
acceptances  on  account  when  many  small  trade  acceptances 
were  purchased  from  one  depositor,  because  they  and  the 
large  acceptances  could  not  always  be  handled  on  the  same 
basis.  This  banker  also  suggested  that  the  collection  forms 
should  not  be  confused  with  tha  discount  department  sys- 
tem, although  he  thought  there  was  a  good  chance  for  the 
improvement  of  many  discount-department  plans  on  ac- 
count of  the  rapid  development  of  rediscount,  bankers'  ac- 
ceptances secured  and  unsecured,  etc. 

Suggested  Forms  for  Record  of  Trade  Acceptances 
through  Banks. — The  suggestions  of  the  bankers'  con^mit- 
tee,  made  in  rough  form,  follow: 

The  Committee  appointed  to  suggest  methods  for  the  efficient 
handling  of  Trade  Acceptances  has  very  carefully  considered  this 
matter,  and  does  not  find  any  difficulty  in  handling  these  accept- 
ances in  banks  except  in  the  large  number  of  discount  calcula- 
tions which  would  be  necessary  should  the  use  of  these  Accept- 
ances become  general. 

We  believe  that  it  would  be  best,  instead  of  discounting  these 
Acceptances,  to  purchase  them  from  the  owners  and  figure  run- 
ning interest,  making  charges  for  same,  together  with  exchange 
charges,  once  each  month. 

If  this  procedure  would  be  acceptable,  we  would  suggest  the 
following  method  for  handling  them  : 

Give  each  customer  selling  any  quantity  of  these  Acceptances, 
a  number.  When  such  customer  would  offer  Trade  Acceptances 
for  sale  or  discount,  the  total  amount  of  such  Acceptances  would 
be  entered  on  the  offering  book,  and  his  account  on  the  individual 
books  of  the  bank  credited  with  the  amount  of  such  total.  The 
number  of  the  customer  should  then  be  placed  on  the  reverse 
side  of  the  Trade  Acceptances  as  follows :  T.  A.  ttl.  An  account 
would  then  be  opened  in  the  liability  ledger  as  follows:  (Suppos- 
ing a  man's  name  was  John  Smith,  address  1101  E.  Main  St., 
Richmond,  Va.)  "John  Smith,  1101  E.  Main  St.,  Richmond,  Ya., 
Trade  Acceptance  account  ttl." 

The  Trade  Acceptances  purchased  would  then  be  entered  in 
detail  on  the  liability  ledger,  from  a  sheet  of  which  we  make  a 


164 


ACCEPTANCES 


part  of  this  report.  The  Trade  Acceptances,  after  having  been 
so  listed,  would  be  delivered  to  the  Collection  Department  and 
forwarded  to  the  place  of  payment  for  collection.  The  entry 
covering  the  purchase  of  these  Acceptances  would  be  Trade 
Acceptances  debited  on  the  general  ledger  under  an  account  60 
styled,  and  John  Smith  credited  on  the  individual  books. 


(City  or  Drawer) 


(Date  o(  Matu:  Ity 


Bf-I 


The  obligation    of^he 
from  tbe  drawer.     The   frrawei 
any  Trust  Compaoy  In  itf^  UdI 

o 
u 

< 


I  2'^-- 


t-    <:     e.  ^ 


TO_ 


(Naiue  ot  Drawee) 


imt 


W  Y  TO  THE  ORDER  C«"  OUftSBLVBe 


.DOLLARS    ($_ 


irises  out  of  the  purchase  of  -good^ 
bill  payable  at  any  Bank.  Banker  or 
le  may  designate 


(Direct  Address) 


(Signature  of  Drawer) 


(City  of  Drawee) 


Figure  21. 


Acceptance  Form  Eecommended  by  the  American 
Bankers  '  Association  Committee 


As  the  Trade  Acceptances  were  paid  or  returned,  the  Collec- 
tion Department  would  in  turn  advise  the  Discount  Department, 
and  those  paid  would  be  credited  to  the  Trade  Acceptance  ac- 
count, and  those  returned  unpaid  charged  against  the  seller's 
account  and  credited  to  the  Trade  Acceptance  account  on  the 
general  ledger  and  the  liability  book  kept  in  the  Discount  De- 
partment. 

By  this  method  you  will  see  that  the  balances  outstanding 
would  change  from  day  to  day.  At  the  end  of  the  month,  interest 
on  the  average  daily  outstanding  amount  of  Trade  Acceptances 
purchased  would  be  charged  against  the  account  of  the  seller 
together  with  all  exchange  charges  incidental  to  the  collection 
of  these  items. 

The  reason  that  these  accounts  should  be  given  a  number  is 
that  the  Collection  Department  would  send  them  out  for  col- 
lection and  their  records  would  be  made  from  the  numbers.  For 
instance,  under  the  example  above  mentioned,  the  record  of  the 
Collection  Department  would  show  that  Trade  Acceptance  ac- 
count tl  would  be  credited  with  the  proceeds  of  any  one  of  them 


BANK'S  RECORDS  OF  ACCEPTANCES        165 


Form  No.  55                                                                      (Yellow) 
MERCHANTS  NATIONAL  BANK,  Richmond,  Va. 

Correspondeat 

NO  PROTEST 

No.  7535 

TO         Yonr  date 
or  Qumber 

Dale 
Sent 

Payer 

Amount 

Due 

Form  No.  55 

(Pink) 

No.  7535 

Sent  to 

NO  PROTEST 

CREDIT 

Date 
Sent 

Payer 

Amount 

Due 

Form  No.  55  (White) 

MERCHANTS  NATIONAL  BANK.  Richmond.  Va. 


We  enclose  herewith  for  collection  the  item 


Please  refer  to 
our  number 


Form  No.  55                                                                           (Blue) 
DEBIT 

NO  PROTEST 

No.  7535 
ENDORSER 

Date 
.Sent 

Payer 

Amount 

Due 

Figure   22.     Triplicate   Acceptance   Collection   Blanks   Recom- 
mended BY  THE  American  Bankers'  Association  Committee 


166  ACCEPTANCES 

paid,  instead  of  John  Smith's  Trade  Acceptance  account.  The 
Discount  Department  would  be  advised  from  day  to  day  the 
numbers  under  which  the  various  Trade  Acceptances  were  sent 
out  as  collections.  They  would  also  receive  advices  of  credit  of 
those  paid  and  those  which  were  returned  unpaid  would  be  de- 
livered to  them  in  order  that  proper  entries  be  made.  The  Col- 
lection Department  would  also  advise  the  Discount  Department 
the  amount  of  exchange  charges,  protest  fees,  etc.,  which  would 
be  collected  from  the  seller  of  the  acceptances. 

We  would  suggest  that  the  form  of  Trade  Acceptances,   as 


Form  No.  55 

(Postal  Card) 

The  Item  described  below  has  been  received  from  the 
Merchants  National  Bank  of  Richmond,  Va. 

By 

■ 

and   entered    for   collection,   their   instructions   noted 

NO  PROTEST 

Date 
Sent 

Payer                                            Amount 
PLEASE  SIGN  AND  RETURN  BY  FIRST  MAIL. 

Due 

Figure  23.     Collection  Notice  Recommended  by  the  American 
Bankers'  Association  Committee 


shown  on  the  enclosed  [Figure  21],  be  made  uniform  throughout 
the  country.  The  only  addition  to  these  forms  that  we  think  neces- 
sary is  that  there  should  be  some  stipulation  thereon  by  which 
the  Acceptor  should  agree  to  stand  for  the  charges  incidental  to 
the  collection  of  these  items.  We  would  therefore  suggest  that 
the  triplicate  system  of  collection  blanks  be  used,  a  sample  of 
which  we  enclose  herewith.  The  advantages  of  this  system  are 
many  and  we  take  the  liberty  of  mentioning  one  or  two  very 
apparent  ones  when  used  in  connection  with  the  above-mentioned 
suggestion. 

The  yellow  sheet  can  be  given  to  the  Discount  Department  in 
order  that  they  may  secure  information  as  to  the  number  under 
which  various  Trade  Acceptances  were  forwarded  for  collection, 
and  it  will  also  answer  as  a  receipt  to  the  Discount  Department 


BANK'S  RECORDS  OF  ACCEPTANCES    167 

for  these  items  and  can  be  filed  by  them  in  order  that  at  any 
time  they  might  prove  the  Trade  Acceptance  account  by  merely 
adding  up  the  amounts  indicated  on  these  slips,  as  the  total  of 
these  slips  should  equal  the  amount  of  Trade  Acceptances  out- 
standing. 

The  pink  sheet  would  be  given  them  upon  date  of  payment,  or 
if  the  item  was  returned,  and  from  this  slip  all  entries  would  be 
made  in  the  individual  account  on  their  liability  ledger.  The 
Discount  Department  would  also  indicate  on  these  pink  slips 
the  exchange  charges,  etc. 

The  blue  slips  of  course  would  not  come  to  the  Discount  De- 
partment, but  would  be  the  charge  entry  against  the  correspondent 
to  whom  those  items  were  sent  for  collection. 

We  do  not  think  it  necessary  to  describe  the  white  sheet,  as 
this  will  speak  for  itself. 

The  form  of  liability  ledger  of  course  could  be  used  should 
the  bank  desire  to  discount  each  individual  acceptance.  We  fear, 
however,  as  indicated  at  the  outset  of  this  report,  that  should 
banks  insist  upon  discounting  these  Acceptances,  it  would  be  a 
very  tedious  task  for  the  Discount  Department,  and  nothing  would 
be  saved  by  this  method.  We  understand  that  in  Canada  they 
make  a  practice  of  discounting  these  Acceptances.  We  believe, 
however,  that  in  the  United  States,  with  the  tremendous  volume 
of  business  done,  that  Trade  Acceptances  would  not  become  pop- 
ular in  banks  on  account  of  the  large  amount  of  extra  detail 
work  necessai-y,  if  they  are  discounted,  while,  if  the  interest  were 
figured  on  running  time,  or  on  the  same  basis  as  call  loan 
interest  is  now  figured,  this  would  assist  in  making  them  become 
popular. 

This  report,  of  course,  is  a  brief  summary,  and  can  be  added 
to  by  suggesting  forms  on  which  these  Acceptances  could  be 
offered  by  the  customer.  Or,  the  liability  ledger  might  be  made 
in  triplicate,  in  order  that  the  sellers  could  secure  the  total 
monthly  statement  of  their  transactions  with  the  bank  during  the 
month.  Of  course,  it  is  entirely  possible  to  have  other  forms 
which  would  give  the  bank  the  total  acceptances  handled  for  each 
Acceptor,  etc.,  but  we  do  not  think  this  would  be  necessary,  as 
the  bank  is  more  vitally  interested  in  the  amount  of  Trade 
Acceptance  purchased  from  each  customer. 

If  a  customer  is  discounting  his  own  paper  at  the  same  time 
that  he  is  selling  the  Trade  Acceptances,  the  total  amount  of  trade 
acceptances  outstanding  at  any  time  should  be  posted  on  his  ac- 


168  ACCEPTANCES 

count  in  the  liability  ledger,  showing  the  amount  for  which  he  is 
liable  at  all  times,  both  contingent  and  direct. 

Form  of  Bankers'  Acceptances  Employed  in  a  Large 
New  York  Trust  Company. — The  following  record  forms 
are  those  employed  in  a  New  York  trust  company  which 
discounts  acceptances  in  large  numbers  and  totals.  They 
constitute  a  complete  and  exhaustive  record  of  operations 
in  bankers'  acceptances  from  the  initial  contact  with  the 
paper  through  all  the  different  transactions  covering  ac- 
ceptance by  the  bank,  through  rediscount  by  the  Federal 
Reserve  Bank. 

These  forms,  or  records,  including  those  partly  filled 
out,  are  practically  self-explanatory  to  a  banker  familiar 
with  the  operation  of  acceptance  procedure.  Form  num- 
ber one  following  is  varied  by  various  banks  but  is  the 
common  form  of  acceptance  contract  with  the  bank  and 
the  customer. 

ACCEPTANCE  AGREEMENT 

New  Torlc,  Oct.  21,  19—, 
For  and  in  consideration  of  the  acceptance  by  GUARANTY  TRUST 
COMPANY   OF    NEW   YORK,    of    my/our    draft   on   it    numbered- 
1 — :2 — 3  dated  October  SI,  19 —  payable  90  days  sight  for  One  hun- 
dred thousand  Dollars    ($ ),  and  all  other  drafts  which 

may  hereafter  be  accepted  by  the  Guaranty  Trust  Company  of  New 
York  at  my/our  request,  I/we  hereby  deposit  with  and  assign  and 
transfer  to  said  Trust  Company  as  collateral  security  for  the  pay- 
ment of  said  drafts  at  maturity,  as  well  as  for  the  payment  of  any 
and  every  debt  or  liability  of  every  nature  from  the  undersigned  to 
said  Trust  Company,  Warehouse  receipt  No.  248,  Ocean  Warehouse 
Co.  coveriyig  1000  cases,  leather  marled  XJS  vahie  $130,000  with 
such  additional  collaterals  as  may  from  time  to  time  be  required  by 
any  of  the  officers  of  said  Trust  Company,  and  which  the  undersigned 
hereby  promises  to  furnish  on  demand.  And  the  undersigned  hereby 
gives  to  said  Trust  Company,  or  its  assigns,  full  power  to  sell,  assign 
and  deliver  the  whole  or  any  part  of  said  collaterals,  or  any  sub- 
stitutes therefor,  or  any  additions  thereto,  at  any  Broker's  Exchange 
or  elsewhere  at  public  or  private  sale,  at  the  option  of  such  holder, 
on  the  non-performance  c^  any  of  the  promises  herein  contained, 
and  without  notice  of  amount  due  or  claimed  to  be  due,  without  de- 
mand of  payment,  without  advertisement  and  without  notice  of  the 


BANK'S  RECORDS  OF  ACCEPTANCES    169 

time  or  place  of  sale,  each  and  every  of  which  is  hereby  expressly 
waived;  and  on  any  such  sale  the  Trust  Company,  its  assigns  or  any 
of  the  officers  of  said  Trust  Company,  may  purchase  on  its  own  ac- 
count and  without  further  accountability  except  for  the  purchase 
price  thereof,  the  whole  or  any  part  of  the  property  sold  free  from 
any  right  of  redemption  on  the  part  of  the  undersigned,  which  right 
is  hereby  waived  and  released. 

It  is  further  agreed,  that  any  surplus  arising  from  the  sale  of  said 
collaterals,  beyond  the  amount  due  hereon,  shall  be  applicable  upon 
any  claim  of  the  said  Trust  Company  arising  directly  or  by  assign- 
ment against  the  undersigned  at  the  time  of  said  sale,  whether  the 
same  be  then  due  or  not  due. 

And  it  is  further  agreed  that  any  moneys  of  properties,  at  any 
time,  in  the  possession  of  GUARANTY  TRUST  COMPANY  OF 
NEW  YORK  belonging  to  any  of  the  parties  liable  hereon  to  said 
Trust  Company,  and  any  deposits,  balance  of  deposits  or  other  sum 
at  any  time  credited  by  or  due  from  said  Trust  Company  to  any  of 
said  parties,  shall  at  all  times  be  held  and  treated  as  collateral  se- 
curity for  the  payment  of  any  other  obligation,  indebtedness  or 
liability  of  the  undersigned  to  the  said  Trust  Company,  whether  due 
or  not  due,  and  said  Trust  Company  may  at  any  time,  at  its  option, 
set  off  the  amount  due  or  to  become  due  hereon  or  any  other  obliga- 
tions against  any  claim  of  any  of  said  parties  against  said  Trust 
Company. 

And  I/we  also  agree  to  place  said  Trust  Company  in  possession  of 
sufficient  funds  in  cash  previous  to  the  maturity  of  said  draft,  and 
of  any  other  drafts  which  the  said  Trust  Company  may  hereafter 
from  time  to  time  accept  to  meet  the  maturity  of  said  draft  or  drafts 
respectively,  together  with  commission  as  agreed  and  any  interest 
which  may  accrue  thereon,  calculated  at  the  rate  of  six  per  cent. 
(6%)  per  annum.  Any  and  all  drafts  or  bills  of  exchange  now  or 
hereafter  delivered  by  me/us  to  said  Trust  Company  to  be  collected 
shall  be  delivered  to  and  received  by  it  as  security  for  said  acceptance 
or  acceptances  without  impairing  in  any  way  my/our  obligation  here- 
under to  place  said  Trust  Company  in  funds  before  the  maturity  of 
said  acceptance  or  acceptances  as  aforesaid,  and  all  documents  relat- 
ing to  such  bills  for  collection  shall  likewise  be  held  and  received 
by  said  Trust  Company  as  security  with  the  privilege  of  delivering 
same  to  drawees  upon  acceptance  or  acceptances  unless  instruction 
to  the  contrary  shall  be  attached  to  each  bill. 

The  said  Trust  Company  shall  have  the  right  to  apply  the  proceeds 
of  such  collections  against  the  payment  of  said  acceptance  or  accept- 
ances and  of  any  other  indebtedness  due  or  to  become  due  from 
me/us. 

It  is  expressly  agreed  that  I/we  assume  all  responsibility  for  thd 
collection  of  drafts  or  bills  delivered  as  aforesaid  and  for  any  loss, 
costs  or  expense  suffered  or  incurred  by  said  Trust  Company  in 
connection  therewith,  and  that  said  Trust  Company  shall  be  held  free 
of  responsibility  for,  and  my/our  obligation  to  place  said  Trust  Com- 
pany in  funds  as  aforesaid  shall  not  be  affected  or  impaired  by,  any 
default,  neglect,  suspension,  insolvency  or  bankruptcy  of  any  corres- 
pondent or  sub-agent  to  whom  said  bills  or  drafts  may  be  entrusted 


170  ACCEPTANCES 

for  collection  or  for  any  delay  in  remittance,  loss  in  exchange,  or 
the  loss  of  the  said  drafts  or  bills  or  their  proceeds  during  trans- 
mission or  in  the  course  of  their  collection,  and  I/we  expressly  agree 
to  assume  all  responsibility  for,  and  that  my/our  said  obligation  to 
said  Trust  Company  shall  not  be  affected  or  impaired  by,  the  non- 
payment of  any  bills  of  exchange  which  may  be  received  by  said 
Trust  Company  or  by  any  collecting  bank,  agent  or  sub-agent  in  pay- 
ment of  such  drafts  or  bills  of  exchange. 

I/we  also  assume  all  responsibility  of,  and  said  obligation  to  place 
said  Trust  Company  in  funds  shall  not  be  affected  or  impaired  by, 
any  risk  or  error  in  the  course  of  transmission  of  telegrams  and 
cablegrams  or  the  loss  of  letters  or  other  documents  which  may  be 
sent  in  connection  with  the  said  drafts  or  bills  for  collection. 

I/we  also  agree  that  in  the  event  that  any  of  the  said  Trust  Com- 
pany's  correspondents,  agents  or  sub-agents  for  collection  of  said 
drafts  or  bills  shall  advise  it  that  any  of  said  drafts  or  bills  are  not 
promptly  accepted  or  paid,  or  in  the  event  of  the  suspension,  failure 
or  assignment  for  the  benefit  of  creditors,  by  or  the  filing  of  a  petition 
in  bankruptcy  against  the  drawee  or  the  drawees  of  any  of  said  bills 
for  collection,  that  I/we  will  immediately  upon  receipt  of  such  notice, 
waiving  protest,  and  notice  of  protest,  pay  or  cause  to  be  paid  to  said 
Trust  Company  in  cash  the  face  amount  of  such  draft  or  bill  for 
collection  which  has  not  been  accepted  or  the  drawee  of  which  has 
suspended,  failed  or  assigned  or  against  whom  a  petition  in  bank- 
ruptcy has  been  filed  as  aforesaid. 

In  the  event  of  my/our  suspension,  failure  or  assignment  for  the 
benefit  of  creditors,  or  of  petition  in  bankruptcy  being  filed  against 
me/us,  or  the  non-fulfillment  of  any  obligation  hereunder  on  my/our 
part  to  be  performed,  all  obligations  and  liabilities  to  said  Trust 
Company  on  my/our  part  shall  immediately,  without  notice,  accrue 
and  mature  and  become  due  and  payable,  and  it  is  also  agreed  that  in 
either  of  those  events,  said  Trust  Company  may  take  such  action  with 
respect  to  the  correction  of  any  or  all  of  said  drafts  and  bills  de- 
livered as  aforesaid  for  collection  as  it  may  deem  advisable  to  pro- 
tect its  interests,  and  I/we  hereby  agree  to  indemnify  and  save  said 
Trust  Company  harmless  from  any  loss,  costs,  damage,  expense  (in- 
cluding reasonable  attorney's  fees)  suffered  or  incurred  by  it  by 
reason  of  such  action  or  by  reason  of  my/our  failure  to  perform  any 
of  the  obligations  arising  hereunder. 

This  obligation  shall  continue  in  force  and  remain  applicable  not- 
withstanding any  change  in  the  individuals  comprising  our  firm, 
whether  such  change  shall  arise  from  the  accession  of  one  or  more 
new  partners  or  from  the  death,  retirement  or  succession  of  any 
partner  or  partners. 

All  rights  arising  under  this  agreement  shall  be  determined  ac- 
cording to  the  laws  of  the  State  of  New  York.  John  Doe. 


BANK'S  RECORDS  OF  ACCEPTANCES    171 


New  York.— .    A^^_  f'>    ^9^ 

Guaranty  Trust  Company  of  New  York 

Fleate  accept  for 


y 


oun>  d,a(l  on  you  dr.wn  by iUcM^-^Crf^U.'C.^ . 


<f^CS^^       /o/^e^f     .    payable      fa     a^    -  ei^r^;^^ 


DolU> 

^   under  <he  teima  of  acceptance  ogrccmenl  dated 
wHh  you         Serured  by  the  following  collateral. 


2./-  /f/a,  o.  m 


Figure  24.     Acceptance  Application 

Figure  24,  acceptance  application,  is  one  used  by  the 
bank  after  the  acceptance  agreement  is  drawn  up,  and 
this  secondary  form  has  its  relation  to  the  foregoing  agree- 


/eUyf.   /■/-     ''f'^ 


.™         :.:n 


Y^f,^"'- 


^""t 


.>^  /^ 


^///m 


nJ 


:P^ 


Figure  25.     Bank's  Record  of  Acceptances  Maturing 


172 


ACCEPTANCES 


Guaranty  Trust  Company  of  New  York 

INSTRUCTIONS  FOR  DISCOUNT 


Acceptance  No-^^T?*^  /     New  York. 

Drawn  by- 


AZ 191^ 


Amount 


%J(^arffJ>rr^P  ^. Tenor  .^<?...^.Rate  -.,£.^- 


Disposition  of  proceeds 


Foreign  Dcp&rtraent 


^ 


Authcsize^ 
by     > 


Figure  26.    Bank's  Instructions  for  Discount 


yj     ^e                                                                             MtMORANOUM   Of  DISCOUNT 

t/                          Guaranty  Trust  Company  of  New  York 

BOUGHTj^F                          Foreign  Dept..  Discount  and  Securities  Diviaioo 

^^'•^^v-'-t^i/.^         /ffr   ^^^'t.fi^i/^^^                     New  York,      ^^^Z^^  t,/ \iya^ 

ACCEPTOR 

Due 

Amount 

Da7* 

lUM 

Discount 

Proceeds 

iU^^t-^t^J^^jt-C^ 

'/,^ 

X^. 

/^r 

f  l*X. 

_ 

^^ 

s- 

^l^c 

^ 

.^"f, 

r.r^ 

— 

Figure  27.    Bank's  Memorandum  op  Discount 


BANK'S  RECORDS  OF  ACCEPTANCES    173 


(Cron  out  the  dJTijtoa  Dot  iue<')Q 
DRAW  CHECK 

No to  oHer  of 

'^IREDIT.accountof 


Discount  and  Securities  Division  Credit  Ticket 

Foreign  Dept,  Guaranty  Trust  Company  of  New  York 


New  York.  iP^   i-r.  19/^ 


\Mf. 


(PWUVO^-^^.'i^ 


'Af 


/i?  o'  f«»*  -' 


fo 


u/^c 


Starap  "Auditor's  Slip"  ber« 


Credit  CI  tk'sNa 


Figure  28.     Bank's  Credit  Ticket 

ment.  It  is  not  necessary  to  utilize  the  same  specific  se- 
curity as  set  out  in  the  acceptance  agreement,  as  the  form 
is  broad  enough  to  cover  additional  collateral,  substitu- 
tions, etc. 

Figure  25  is  the  record  of  the  bank's  acceptances 
maturing,  and  Figure  26  is  the  bank's  instructions  for 
discount.  Figure  27  is  the  memorandum  of  discount  sent 


Figure  29.    Loan  Division  Acceptance  Kecord 


174 


ACCEPTANCES 


AoirrAKcES  purchased  maturing f^'^  ^  ^'  'y  *"^  • 

trr     w. 

c^^.      j      «. 

r. 

..     .                0.,„L 

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1 

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3 

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1 

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1 

1 

1                                     1 

1  ,., 

PiGURE  30.    Bank's  Eecori>  of  Acceptances  Purchased 


to  the  customer.  Figure  27  and  28  are  the  bank's  record 
for  handling  the  items.  Figure  29  is  the  loan  division's 
record  of  acceptances.  Figure  30  is  the  bank's  record  of 
acceptances  purchased,  maturing  on  specific  dates.  Column 
three,  ''G.E.  DOM.,"  signifies  "Guaranteed  Eligible  Do- 
mestic"; column  four,  "G.E.  FOR.,"  signifies  "Guaran- 
teed Eligible  Foreign";  column  five,  "G.  FIN.,"  signifies 
"Guaranteed  Finance."  Figure  31  is  the  record  of  en- 
dorser's and  drawer's  liability  to  the  bank  upon  the  ac- 
ceptance. Figure  32  is  the  acceptor's  liability  record  and 
would  be  used  only  where  the  bank  discounted  acceptances 
of  others.  Figure  33  would  also  be  used  only  where  ac- 
ceptances were  purchased  from  others  and  sold.  Figures 
34  and  35  are  memorandum  slips  of  discount  where  ac- 
ceptances are  sold  to  others  or  discounted. 


BANK'S  RECORDS  OF  ACCEPTANCES         175 


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*"                                                                                                                  tIEMORANOUM    OF    OIECOUNT                                                                                                            '*"^ 

Guaranty  Trust  Company  of  New  York 

Foreign  Dept,  Discount  and  Securities  Division 
SOLD  TO 

o 

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^--^  Guaranty  Trust  Company  of  New  York  ^^ 

Foreiirn  Uept,  Diacount  and  Securities  DivisioD 

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FiGUKEs  33,  34   AND  35.    Bank's  Eecords  of  Acceptances 
Purchased  or  Sold 

176 


BANK'S  RECORDS  OF  ACCEPTANCES         177 

Figures  36  and  37  are  forms  of  record  employed  by 
the  same  banking  house  for  collections  records  and  dis- 
count or  loan  record.  Forms  1  to  8  of  Figure  38  are 
forms  for  special  instructions,  acknowledgment,  collection, 
debit  ticket,  report,  credit  ticket,  payment  advice,  office 
copy.  They  are  all  made  out  by  carbon  at  one  operation. 
Different  banks  use  varying  methods  and  detail. 


r..iM-(T.o^<.<<.ii 

ri  IHLTO 

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c...,,. 

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iliil 

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Figure  36.    Bank's  Collection  Record 


Simple  Records  Used  by  Discount  Company  of  New 
York  on  Bankers'  Acceptances. — A  simple  system  of  num- 
bered records  has  been  devised  by  a  large  discount  cor- 
poration of  New  York,  of  which  Figure  39  is  an  illus- 
tration. These  records  are  made  in  multiple  by  car- 
bon for  the  ledger  in  loose-leaf  form ;  part  of  the  records 
are  used  for  permanent  records  and  the  balance  are  per- 
forated, torn  off,  and  distributed  for  the  records  of  the 
various  departments  or  for  notification  of  the  customer, 
etc.  These  various  sheets  are  on  different  colored  paper 
and  are  headed  or  designated  for  their  particular  distri- 
bution or  use. 

It  will  be  understood  that  these  are  records  of  bankers' 
acceptances  for  transactions  involving  considerable 
amounts  and  that  a  record  of  each  transaction  is  desirable 
or  necessary.     These  sheets  do  not  allow  of  addition  or 


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To 

Guaranty  Trust  Company  of  New  York 

ORIGINAI.                            '"  8"^«"*'  N„  To« 

SPECIAL  INSTRUCTIONS 

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Figure  38.    Duplicate  Record  Forms  for  Various  Departments 

179 


Guaranty  Trust  Company  of  New  York 

FOR  ElON  DC  PA  RTM  iniT 


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t                                         OUTaOINd  COU.CCTION  CIVI&ION-FOReiCN  depahtmcnt 

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•FECIAL  INSTRUCTIONS                 1 

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Figure  38   {Continued).     Duplicate  Record  Forms  for  Various 
Departments 

180 


BANK'S  RECORDS  OP  ACCEPTANCES        181 

the  checking  of  totals,  but  are  sufficiently  specific  in  their 
variety  of  distribution  to  check  up  all  necessary  entries 
and  may  be  rechecked  and  segregated  by  the  number 
stamped  thereon.  This  standardization  of  record  and  its 
simplification  makes  possible  economy  of  detail  and  time 
of  handling. 

These  records,  as  reproduced,  are  made  up,  seven  to  a 
sheet  and  in  multiples  of  five,  of  different  colors  for  differ- 
ent uses,  all  being  duplicated  by  carbon,  when  the  orig- 
inal is  made  on  typewriter. 

The  first,  or  white,  sheet  is  the  permanent  office  record 
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House 


book.  Sheet  number  two,  in  blue,  is  perforated  for  tear- 
ing out  and  distribution,  and  from  this  is  made  the  ma- 
turity record  of  the  acceptance.  These  slips  may  also  be 
used  in  particular  forms  to  come  up  at  maturity  date  or 
two  or  more  days  before  for  record  of  maturity  and  col- 
lection. 

Sheet  number  three,  in  yellow,  is  the  drawer's  record 
and  is  used  as  a  notification  to  the  drawer  of  the  accept- 
ance. Sheet  number  four,  green,  is  the  auditor's  record 
for  distribution  and  to  check  up  on  book  entries.  Record 
number  five,  yellow,  is  a  heavy  sheet,  and  is  used  for  the 
filing  of  the  account.  It  is  not  perforated.  The  check- 
ing of  totals  on  these  sheets  or  records  may  be  done  by  a 
typewriter  totalizer  for  grand  totals,  or  by  checking  and 


182  ACCEPTANCES 

adding  macliines.     They  are  desirable  forms  for  a  discount 
bank  or  house. 

No  doubt  many  modifications  and  additions  to  the  fore- 
going specimen  plan  of  records  will  suggest  themselves  to 
bankers,  credit  men,  and  students  seeking  the  most  sim- 
ple, efficient,  and  economical  forms  and  system  of  records 
in  handling  acceptances  through  the  bank. 


CHAPTER  XVII 

INVESTIGATION  BT  QUESTIONNAIRE  OF  TRADE  ACCEPTANCES 

Of  great  value  are  the  specific  answers  received  to  hun- 
dreds of  questionnaires  upon  acceptance  procedure  sent  by 
a  business  research  bureau  to  business  houses  all  over  the 
country.  The  following  pages  contain  a  digest  of  the 
replies  received.  The  answers  are  expressed  in  percentage 
where  possible,  and  also  include  some  pertinent  comments 
added  by  the  firms  answering.  If  it  were  possible  to  repro- 
duce all  the  lucid  and  painstaking  replies  received,  the 
exceptional  value  of  this  consensus  would  become  even 
more  apparent  to  the  reader. 

To  illustrate  this  intelligent  and  remarkably  generous 
contribution  to  the  general  knowledge  of  the  business 
world  upon  this  subject,  specimen  answers,  typical  of 
varying  conditions  in  trade  and  locality,  from  five  firms 
who  have  used  trade  acceptances  for  from  one  to  three 
years,  are  reproduced  in  full.  The  answers  to  the  ques- 
tionnaire quoted  below  were  made  by:  (1)  a  New  York 
jobber  and  importer  of  specialties;  (2)  a  Philadelphia 
manufacturer  and  jobber  of  paints  and  varnishes;  (3)  an 
Iowa  manufacturer  of  farm  implements  and  machines; 
(4)  a  Washington  (State)  small-food  jobber,  and  (5)  a 
San  Francisco  jobber  of  electric-railway  supplies.  The 
questions  {'^Q")  and  answers  {"A")  of  merchants  Nos. 
1,  2,  3,  4  and  5  follow : 

1.  {Q)  Have  you  used  trade  acceptance'?     How  long? 

{A)    (1)  Since  October,  1916,    (2)  2  years.     (3)  1  year.    (4) 
3  years.     (5)  1  year. 

183 


184  ACCEPTANCES 

2.  (Q)  How  extensively? 

(A)  (1)  On  accounts  where  we  had  to  give  ratings.  (2)  En- 
tirely. (3)  On  all  invoices  of  $50  or  over  for  60  days.  (4) 
In  purchases  mostly,  (5)  On  one  classification  of  trade, 
about  40  per  cent. 

3.  (Q)   Do  you  think  them  advantageous? 

{A)    (1)  Yes,  very.    (2)  Yes.     (3)  Yes.    (4)  Sure.     (5)  Yes. 

4.  (Q)  Do  your  customers  welcome  them? 

(A)    (1)  Some  do.     (2)  Yes.     (3)  No.     (4)  No.     (5)  50-50. 

5.  (Q)  Do  your  customers  resent  them? 

(A)  (1)  Some  do.  (2)  No  reply.  (3)  Yes,  some.  (4) 
Some.     (5)  5  per  cent. 

6.  (Q)  Do  your  customers  ignore  them? 

(A)  (1)  Some  do.  (2)  No  reply.  (3)  Yes,  some.  (4) 
Some.     (5)  45  per  cent. 

7.  (Q)  What  objections,  if  any,   do  your  customers  make  to 

them? 
{A)    (1)  Various.     (2)  None.     (3)  Do  not  know  into  whose 
hands  they  will  fall.     (4)   Do  not  imderstand — too  much 
trouble.      (5)    We  have  competition  which  discredits  and 
calls  them  "drafts,"  etc. 

8.  (Q)  What  answers  do  you  give  to  objections? 

{A)  (1)  That  depends.  (2)  No  reply.  (3)  Makes  no  differ- 
ence to  them  as  long  as  proper  use  is  made.  (4)  Those 
needed.  (5)  Various,  but  principally  we  state,  "This  is 
neither  dun  nor  draft." 

9.  (Q)  What  objections,   if   any,   do   your  salesmen   make  to 

them? 
(A)    (1)  None,     (2)  None.     (3)  Salesmen  harder  to  educate 
than  the  customers.     (4)   None.     (5)   We  have  explained 
matters  so  they  can't  object. 

10.  (Q)  What  answers  do  you  give  to  objections? 

(A)  (1)  No  reply.  (2)  No  reply.  (3)  No  reply.  (4)  No 
reply.     (5)  No  reply. 

11.  (Q)  What  objections,  if  any,  does  your  bank  make  to  them? 
(A)    (1)  None.     (2)  None.     (3)  None,  they  encourage.     (4) 

Banks  are  awake — most  of  them.      (5)    Our  bankers  are 
asleep  and  mildly  object;  they  don't  want  any  of  them. 


INVESTIGATION  BY  QUESTIONNAIRE         185 

12.  (Q)  "What  answers  do  you  give  to  objections? 

(.4)  (1)  No  reply.  (2)  No  reply.  (3)  No  reply.  (4)  No 
reply.     (5)  Don't  try  any  more. 

13.  (Q)  What  objections,  if  any,  do  you  make  to  them? 

(A)  (1)  None.  (2)  None.  (3)  None.  (4)  None;  the  best 
way  to  do  business.     (5)  None  whatever. 

14.  (Q)  Do  you  find  that  they  interfere  with  your  one-name  paper 

or  line  of  credit? 
(^)    (1)  No.     (2)  No.     (3)  They  assist.     (4)  No— help  get 
more.     (5)  No. 

15.  (Q)  Do  they  increase  your  total  line  of  credit? 

(A)    (1)  Yes.    (2)  Yes.    (3)  Couldn't  say.    (4)  Sure.   (5)  No. 

16.  (Q)  What  proportion  do  you  discount? 

(A)  (1)  All.  (2)  50  per  cent.  (3)  100  per  cent,  practically. 
(4)  60  per  cent,  about.     (5)  50  per  cent. 

17.  (Q)  Average  rate? 

(A)  (1)  5  per  cent.  (2)  4  per  cent.  (3)  41/^  per  cent  to  6 
per  cent.  (4)  6  per  cent.  (5)  6  per  cent,  as  my  bank 
doesn't  recognize  any  difference  between  a  note  and  ac- 
ceptance. 

18.  (Q)  What  proportion  has  been  returned  unpaid? 

(A)  (1)  0.1  per  cent.  (2)  Comparatively  none.  (3)  Not 
10  per  cent.  (4)  Hardly  ever.  (5)  1  per  cent — anticipated 
about  5  per  cent. 

19.  (Q)  AYhat  are  average  collection  costs? 

[A)  (1)  No  reply.  (2)  No  reply.  (3)  I/2  per  cent  to  1  per 
cent.     (4)  No  reply.     (5)  15  cents. 

20.  {Q)  What  form  of  acceptance  do  you  use,  and  why?     [Two 

samples  are  requested.] 
(A)    (1)  Samples  enclosed.    (2)  Attached.     (3)  See  attached. 
(4)  No  reply.     (5)  Samples  speak  for  themselves. 

21.  (Q)  What  form  of  register  do  you  use?     [Two  samples  re- 

quested.] 
(A)     (1)  Ledger  account.     (2)  No  reply.     (3)  Same  as  note. 
(4)  Regular  cheek  register.     (5)  Usual  note  register. 

22.  (Q)  Do  you  "tickle"  or  follow-up  acceptances  not  returned? 
(A)   (1)  Yes.     (2)  No.     (3)  Yes.     (4)  No  reply.     (5)  No. 

23.  (Q)  Methods   [sample  forms  requested.] 

(A)  By  keeping  letter  in  tickler.  (2)   No  reply.   (3)  Make 


186 


ACCEPTANCES 


second  and  third  requests.     (4)   No  reply.     (5)  We  pro- 
ceed, as  soon  as  due,  to  collect. 

24.  (Q)  What  form  of  record  do  you  keep  when  you  put  accept- 

ances in  bank  for  collection  or  discount?     [Sample  forms 
requested.] 
(A)    (1)  Ledger  account.     (2)  Same  as  ordinary  note.     (3) 
Consider  it  paid  until  returned  to  us.     (4)  No  reply.     (5) 
No  different  than  notes. 

25.  (Q)  What  letters  of  instruction  to  salesmen  or  departments 

do  you  use?     [Sample  forms  requested.] 
(A)    (!)  None.     (2)  Verbal  instructions.     (3)  See  attached. 
(4)  No  reply.     (5)  Have  talked  matter  over  in  meetings. 

26.  (Q)  What  inducements,  if  any,  over  regular  terms,  do  you 

give  to  buyer  for  signing  acceptances? 
(A)(1)  Extra  time.     (2)  30  days.     (3)  None;  are  considering 
it.      (4)    Extra  time,  discount,  and  more  credit.      (5)    30 
days  extra  time  and  1  per  cent  discount:  1  per  cent  only 
because  we  have  no  cooperation  whatever  in  our  line. 

27.  (Q)  Do  you  handle  as  ''acceptances  receivable"? 

(A)  Yes.     (2)  Yes.     (3)  No  reply.     (4)  Yes.     (5)  Yes. 

28.  (Q)    (1)   Do  you  handle  as  "bills  receivable"? 

(A)    (1)  Yes.     (2)   No.     (3)     Yes.     (4)  No.     (5)  No. 

29.  (Q)  Do  you  find  trade  acceptances  save  you  in  following 

ways  or  not? 

Are  your  accounts  paid  more  promptly? 
(A)   (1)  Yes.     (2)  Yes.     (3)  Yes.     (4)  Yes.     (5)  Yes. 

30.  (Q)  Does  it  minimize  taking  cash  discounts  after  discount 

date? 
(A)    (1)  Yes.     (2)  No.     (3)  Yes.     (4)  Yes.     (5)  Yes. 

31.  (Q)  Does  it  save  time  in  bookkeeping?    Accounting?    Dun- 

ning?   Collection  by  lawyers? 

U) 


Bookkeeping 

Accounting 

Dunning 

Collection  by 
Lawyers 

n) 

(2) 

(4) 
(5) 

Yes 
No 
No 
Yes 
Yes 

Yes 
No 
No 
Yes 
Yes 

Yes 
Yes 
Yes 
Yes 
Yes 

Yes 

No 
Possibly 

Yes 
Naturally 

INVESTIGATION  BY  QUESTIONNAIRE        187 

32.  (Q)  Do  you  find  a  benefit  from  having  accounts  in  more 

liquid  form? 
(A)    (1)  Yes,  we  can  use  the  money  without  inconvenience  to 
the  acceptor.    (2)  Yes,  turn  them  into  cash.    (3)  Yes,  turn- 
ing- our  capital   oftener.      (4)    Can   easily   discount.      (5) 
Yes,  because  liquid  instead  of  absolutely  dead  and  useless. 

33.  (Q)  Do  you  get  a  preferential  discount  rate  on  acceptances 

over  one  name  paper? 
(A)    (1)  No.     (2)  Yes.     (3)  No.     (4)  Not  yet.     (5)  No. 

34.  (Q)  Do  your  banks  prefer  trade  acceptances  to  your  notes? 
(A)  (1)  No.     (2)  No  reply.     (3)  Yes.     (4)  Some.     (5)  No. 

35.  (Q)  Do  you  sell  trade  acceptances  elsewhere  than  your  bank? 
(A)  (1)  No.     (2)  No.     (3)  No.     (4)     No.     (5)  No. 

36.  (Q)  Please  state  fully  your  idea  of  benefits  to  buyer  accept- 

ing? 
(A)  (1)  No  reply.  (2)  Gives  30  days'  additional  time.  (3) 
Impresses  him  that  he  has  the  obligation  payable  at  his 
bank  he  desires  to  keep  credit  good.  (4)  More  time  and 
better  for  seller  which  helps  buyer  in  end.  (5)  It  will 
eliminate  eventually  his  irresponsible  cut-throat  competi- 
tion. 

37.  (Q)  Do  you  pay  your  bills  with  trade  acceptance? 

(A)  (1)  We  discount  our  domestic  bills,  but  pay  our  foreign 
accounts  by  90  days'  draft  against  L.  C.  These  drafts  are 
accepted  by  our  bank  upon  presentation.  (2)  No.  (3) 
Yes.     (4)  Yes.     (5)  No. 

38.  (Q)  Do  you  get  better  rates? 

{A)  (1)  No  reply.  (2)  No  reply.  (3)  No.  (4)  No.  (5) 
No  reply. 

39.  (Q)  Does  your  trade  association  favor  acceptances? 

(A)  (1)  Yes.  (2)  Yes.  (3)  Yes.  (4)  Don't  know.  (5) 
Increased  to  about  50  per  cent  now. 

40.  (Q)  What  have  they  done  to  encourage  them? 

(A)  (1)  No  reply.  (2)  No  reply.  (3)  Series  of  letters.  (4) 
Don't  know.    (5)  Knocked  and  ridiculed. 

41.  (Q)  What  other  firms  do  you  know  of  who  now  use,  or  pro- 

pose to  use,  trade  acceptances? 
(A)    (1)   No  reply.     (2)   Paint  and  varnish  manufacturers, 


188  ACCEPTANCES 

Pennsylvania.  (3)  Manufacturing  company,  Iowa.  (4) 
All  flour  mills  and  grain  dealers  in  Seattle.  (5)  Electric 
railway  company. 

It  should  be  fully  kept  in  mind  that  those  using  trade 
acceptances  and  those  not  yet  doing  so,  as  evidenced  by 
the  answers  to  the  questionnaire,  were  judging  trade  ac- 
ceptances largely  by  "rule  of  thumb,"  while  those  who 
had  the  advantage  of  starting  on  a  complete,  tested  plan, 
and  who  did  not  need  to  make  any  errors  of  omission  or 
commission,  showed  a  higher  percentage  of  returns. 

Tabulation  of  Questions  and  Answers  Received. — The 
following  tabulation  of  results  of  the  investigation  is  self- 
explanatory.  The  value  of  these  data  will  be  best  appre- 
ciated by  the  reader  through  careful  analysis  and  judgment 
based  upon  the  figures  and  quotations  given. 

Have  you  used  trade  acceptances?     Yes,  35  jDer  cent;  No,  65  per 
cent. 

How  long?     Average  less  than  a  year. 

How  extensively?     Average  about  "fair." 

Do  you  think  them  advantageous?     Yes,  94  per  cent;  No,  6  per 
cent. 

Do  your  customers  welcome  them?     Yes,  50  per  cent. 

Do  your  customers  resent  them?     Yes,  10  per  cent. 

Do  your  customers  ignore  them?     Yes,  40  per  cent. 

What    objections,   if    any,   do    your   customers    make    to    them? 
"Have  never  heard  of  them." 

"Don't  sign  drafts.    Resent  ad\'iee  in  their  financial  arrange- 
ments." 
"Do  not  quite  understand  as  yet." 

"Expect  to  pay  when  due;  don't  care  to  sign  acceptance." 
"Return  acceptances,  refer  to  them  as  'notes.' " 
"Additional  time  no  object." 
"Payment  before  receiving  goods,  etc." 
"Some  consider  acceptances  same  as  'notes.'  " 


INVESTIGATION  BY  QUESTIONNAIRE        189 

"Some  have  expressed  the  opinion  that  signing  would  release 

seller  of  responsibility  for  eiTors." 
"Competitors  call  them  draft,  etc." 
"Ties  them  down  to  definite  day  of  payment." 
"Prefer  old  terms." 
"Large  percentage  of  class  of  trade  we  sell   (grocers)   are 

foreigners;  would  not  understand  what  acceptances  are." 

What  answers  do  you  give  to  objections? 

"Offer  them  interest  at  7  per  cent  per  annum  for  2  months." 

"That  it  is  to  their  advantage  to  accept  them." 

"To  pay  cash,  or  complete  acceptance." 

"Try  to  explain  explicitly  advantages." 

"Tell  them  payment  on  tenns  is  satisfactory,  and  each  month 

give  them  another  letter  and  trade  acceptance  filled  out." 
"Along  lines  as  advanced  by  National  Association  of  Credit 

Men." 
"Thoroughly  responsible  and  always  willing  to  adjust  existing' 

differences  promptly,  whether  account  is  settled  or  not." 
"Say  it  is  neither  a  'dun'  nor  'note.' " 
"Get  more  credit  and  accommodations." 
"Explain  use  in  other  countries." 

What  objections,  if  any,  do  your  salesmen  make  to  them?    None, 
100  per  cent. 

What  explanations  do  you  make  to  salesmen? 

"Customers  should  pay  up  or  sign  up." 

"Explain  advantages  to  all  concerned." 

"It  is  necessai-y,  in  order  to  bring  about  a  reform  of  this 
sort,  to  bring  all  departments  into  cooperation  in  the  mat- 
ter. It  certainly  is  necessaiy  to  have  the  salesmen  under- 
stand them,  as  a  salesman  should  always  understand  the 
terms  on  which  he  is  selling  goods.  Terms  are  a  part  of 
the  price." 

"Explain  matter  so  they  cannot  object." 

What  objections,  if  any,  does  your  bank  make  to  them? 
"Practically  none." 

"Bankers  mildly  asleep — don't  want  them." 
"They  endorse  them." 
"Few  passed  through  their  hands." 
"Don't  like  lower  rate  of  discount." 
"Bank  gladly  handles  them." 


190  ACCEPTANCES 

What  objections,  if  any,  do  you  make  to  them  ?    Practically  none, 

99  per  cent.  From  a  book  company  in  Ohio  came  the  fol- 
lowing letter: 

"We  made  a  detennined  effort  to  introduce  the  use  of  the 
trade  accejitance  among  our  customers,  taking  special  pains 
to  explain  that  it  had  been  especially  recommended  by  the 
Federal  Reserve  Banks.  We  were  compelled,  however,  to 
abandon  our  efforts  and  discontinue  the  use  of  the  trade 
acceptance  for  the  following  reasons : 

"A  great  number  of  the  banks  persisted  in  handling  the  ac- 
ceptance either  entirely  as  a  personal  check,  or  entirely  as 
a  draft,  holding  for  presentation  and  returning  for  "no 
attention"  or  returning  at  once  for  "not  sufficient  funds," 
without  notice  to  drawer  or  acceptor,  in  which  practice 
there  was  considerable  confusion  and  annoyance  to  our 
customers  who  had  availed  themselves  of  its  use. 

"We  feel  that  we  did  not  have  the  full  cooperation  of  the 
banks  in  the  introduction  of  the  general  use  of  the  trade 
acceptance. 

"We  can  readily  see  that  the  trade  acceptance,  if  gener- 
ally used,  is  of  unquestionable  value  to  both  the  buyer  and 
seller. 

"We,  however,  knew  that  to  establish  its  general  use,  the 
initiation  must  come  through  the  banks,  and  especially 
should  the  banks  of  smaller  communities  be  asked  to  in- 
struct their  customers  in  the  benefits  resulting  from  the 
use  of  trade  acceptances." 

Do  you  find  that  they  interfere  with  your  one-name  paper  or  line 
of  credit?     No,  100  per  cent. 

Do  they  increase  your  total  line  of  credit?  Yes,  99  per  cent. 
No,  1  per  cent. 

What  proportion  do  you  discount?  All,  50  per  cent;  none,  20 
per  cent;  half,  10  per  cent;  varies,  20  per  cent.  Average 
rate :  over  6  per  cent,  10  per  cent ;  6  per  cent,  50  per  cent ; 
5I/2  per  cent,  10  per  cent ;  5  per  cent,  30  per  cent. 

What  proportion  has  been  returned  unpaid? 

Sixty  per  cent,  none;  15  per  cent,  1  per  cent;  10  per  cent, 
2  per  cent;  10  per  cent,  2  to  5  per  cent;  5  per  cent,  5  to 
10  per  cent. 


INVESTIGATION  BY  QUESTIONNAIRE        191 

What  are  average  collection  costs? 

Averag-e  of  25  cents,  10  per  cent;  15  cents,  20  per  cent; 
slight,  30  per  cent;  none,  40  per  cent.  ^ 

What  form  of  register  do  you  use? 

Regular  book,  20  per  cent;  ledger  account,  5  per  cent; 
regular  bills  receivable,  40  per  cent;  regular  ledger  and 
journal  entry,  5  per  cent;  no  special  form,  10  per  cent; 
similar  to  notes  receivable  register,  10  per  cent;  we  have 
none,  10  per  cent. 

Do  you  ^'tickle"  or  follow  up  acceptances  not  returned? 
Yes,  50  per  cent ;  no,  50  per  cent. 

Methods  used  for  follow  up? 
"No  form." 
•  "By  keeping  letter  in  tickler." 
"By  personal  letter." 
"None   except  referring  when   asking  remittance   after   30 

days." 
"Acceptance  is  optional.     If  not  accepted  we  go  after  the 

collection  on  30  days'  basis." 
"We  follow  up  acceptances  that  are  not  returned  until  we 

get  them  back." 
"We  proceed  as  soon  as  due  to  collect." 

What  form  of  records  do  you  keep  when  you  put  acceptances  in 

hank  for  collection  or  discount? 

"Notation  on  ledger  account." 

"Regular  book."  * 

"General  book  record." 

"Use  book  record  marked  trade  acceptance.  We  discount 
everything  and  thus  reduce  our  'bills  payable'  accounts 
and  also  keep  trade  acceptance  account  nearly  in  balance." 

"Carry  same  on  ledger  (special)." 

"Entry  in  cash  book  and  acceptance  register." 

"Same  as  notes." 

"Bank  collection  book." 

"Deposit  in  regular  account." 

What  letters  of  instruction  to  salesmen,  or  departments,  do  you 
use?  None,  75  per  cent;  various  letters  and  talks,  25  per 
cent.  Those  who  state  they  do  not  send  any  letter  handle 
the  subject  as  follows: 


192  ACCEPTANCES 

"They  are  handled  by  credit  department  and  mailed  with 
invoices  (see  letter  attached)." 

"All  such  matters  handled  through  credit  and  collection  de- 
partment." 

"Talked  over  in  sales  meetings." 

"Verbal  instructions  and  bulletins  and  forms  sent  to  cus- 
tomers." 

What  inducement,  if  any,  over  regular  terms  do  you  give  buyer 
for  signing  acceptances? 

Thirty  days  extra  time  and  2  per  cent,  1  per  cent;  30  daj'S 

extra  time  and  1  per  cent,  20  per  cent;  no  days  extra  time 

and  Yz  of  1  per  cent,  IS  per  cent;  60  days  extra  time  and 

^  of  1  per  cent,  5  per  cent;  30  days  extra  time  and  no  per 

cent,  30  per  cent ;  60  days  extra  time  and  no  per  cent,  15  per 

cent ;  over  60  days  extra  time  and  no  per  cent,  1  per  cent ;  no 

extra  time  and  no  per  cent,  10  per  cent. 

Do  you  handle  as  "Acceptances  Receivahle"  f     Yes,  90  per  cent. 

Do  you  handle  as  "Bills  Receivable"?     Yes,  10  per  cent. 

Do  you  find  trade  acceptances  save  you  in  followina  ways  or  not? 

(a)  Are  your  accounts  paid  more  promptly?     Yes,  100  per 

cent. 
(6)  Does  it  minimize  taking  cash  discounts  after  discount 

date?     Yes,   70   per  cent;   no,   30   per  cent. 
(c)  Does  it  save  time  in  bookkeeping?     Yes,  60  per  cent; 
no,  40  per  cent. 

Accounting?     Yes,  60  per  cent;  no,  40  per  cent. 
Dunning.     Yes,  95  per  cent;  no,  5  per  cent. 
Collection   by   lawyers?     Yes,   95 'per  cent;   no,   5   per 
cent. 

Do  you  find  a  benefit  from  having  accounts  iji  more  liquid  form? 
Yes,  95  per  cent;  no,  5  per  cent. 

"Can    discount   accounts  payable  readily." 

"It  is  a  financial  aid.  Assists  in  keeping  our  bank  account 
right  on  discount  days." 

"Gives  us  more  available  funds  to  work  with." 

"Larger  line  of  credit." 

"We  can  use  the  money  without  inconvenience  to  the  en- 
dorser." 

"Can  realize  on  them  when  needed." 

"Gives  us  use  of  money  before  bills  are  due." 


INVESTIGATION  BY  QUESTIONNAIRE         193 

''Because  liquid,  instead  of  absolutely  dead  and  useless." 

"Reduce  borrowing  on  our  own  note." 

"More  capital  available." 

"We  deposit  every  acceptance  at  once  with  our  bank." 

Do  you  get  any  preferential  discount  rates  on  acceptances  over 
one-name  paperf    Xo,  95  per  cent;  yes,  5  per  cent. 

How  much  on  average?     One-half  of  1  per  cent. 

Do  you  sell  trade  acceptances  elsewhere  than  your  hank?     No, 
100  per  cent. 

Please  state  your  idea  of  benefits  to  buyer  accepting. 

"Increases  credit  standing  by  establishing  a  reputation  for 
prompt  payment  of  obligations." 

"Increases  the  desirability  of  his  account  from  a  credit 
standpoint." 

"Teaches  him  to  be  prompt — to  plan  for  payment— to  save 
for  it." 

"Makes  him  a  preferred  credit  risk  in  our  business." 

"Will  eventually  eliminate  competition  from  dishonest  buy- 
ers." 

"Lfonger  time." 

"Larger  credit  limit." 

"Thirty  days  extra  time." 

Do  you  pay  i/our  bills  with  trade  acceptances? 
"Rarely."' 
"Partly." 

"We   discount   our  domestic   bills  but   pay   our  foreign   ac- 
counts by  90  days'  drafts  against  L/C.     These  drafts  are 
accepted  by  our  bank  upon  presentation." 
"Yes,  if  requested." 
"Some  of  them." 
"When  we  get  a  chance." 

Do  you  get  better^  rates?     Seldom. 
Does  your  Trade  Association  favor  acceptances? 
Yes,  65  per  cent;  not  on  record,  35  per  cent. 

What  have  they  done  to  encourage  them? 
"Nothing." 

"Committee — speakers." 

"Just  discussed  their  use  at  our  last  convention." 
"Trying  to  educate  our  trade." 


194  ACCEPTANCES 

"Adopted  their  use." 

"Had  addresses  at  semi-annual  convention  on  this  subject, 

but  nothing-  definite  decided  on." 
"Urge  retailers  to  use  them." 

Summary  of  Opinion. — The  answers  indicate  that  trade 
acceptances  are  being  used  successfully  in  all  lines  of 
merchandising  trade.  The  replies  show  earnest  attention 
to  the  plan  by  those  using  them,  but  do  not  show  stand- 
ardized methods  or  results. 


PART  II 

RULINGS  AND  OPINIONS  OF  COUNSEL 
OF  THE  FEDERAL  RESERVE  BOARD  ON 
ACCEPTANCE  PROCEDURE  AND  FORMS 


CHAPTER  XVIII 

RULINGS  OF  THE  FEDERAL  RESERVE  BOARD  * 

1.  Refusal  to  Pay  a  Draft. 

RefiTsal  of  a  Federal  Resei'\'e  Bank  to  pay  a  draft  of  a 
member  bank  which  is  \dolating  its  reserve  requirements.  ''Under 
these  circumstances  the  Federal  Reserve  Bank  would  have  no 
right  to  refuse  payment  of  the  draft  of  a  member  bank  on  the 
ground  stated."    Bulletin,  May,  1915,  p.  12. 

2.  Limitation  of  Loan  on  Live  Stock. 

The  limitation  of  25  per  cent  on  loans  for  agricultural  pur- 
poses or  based  on  live  stock  applies  only  to  paper  ha\'ing  maturity 
in  excess  of  90  days.    Bulletin,  June,  1915,  p.  72. 

3.  Live  Stock  Includes  Beef  Cattle,  Horses,  and  Mules. 

The  term  ''live  stock"  is  held  to  include  not  only  beef  cattle, 
but  horses  and  mules.    Bulletin,  June,  1915,  p.  72. 

4.  Notes  for  Fertilizer  Eligible. 

A  farmer's  six  months'  note  for  commercial  fertilizer,  dis- 
counted and  indorsed  by  a  member  bank,  is  agi'icultural  paper 
eligible  for  rediscount  with  the  Federal  Reserve  Bank.  Bulletin, 
June,  1915,  p.  75. 

5.  Cattle  Mortgages  Unnecessary. 

Mortgages  on  cattle  are  not  required,  and  the  question  whether 
paper  secured  by  cattle  is  self-liquidating  is  a  local  one  to  be 
determined  at  the  Federal  Reserve  Bank.  Bulletin,  June, 
1915,  p.  74. 

The  Act  does  not  require  the  taking  of  chattel  mortgages  as 
security  for  loans  based  on  agi-icultural  operations.  The  state- 
ment of  the  member  bank  to  this  effect  must  ordinarily  be 
accepted.    The  direct,  primary  purpose  of  the  loan  should  be  for 

^Complete  as  published  in  the  Federal  Reserve  Bulletin,  1915-1920. 

197 


198  ACCEPTANCES 

the  ordinary  operations  of  agriculture.  Words  "based  on"  are 
not  considered  synonymous  with  "secured  by."  Agricultural 
paper  need  not  be  directly  secured  by  agricultural  products,  but 
should  be  genuinely  based  upon  transactions  entered  upon  for 
agricultural  operations.  General  banking  prudence  and  knowl- 
edge should  be  applied.    Bulletin,  June,  1915,  p.  72. 

6.  Paper  of  Finance  Companies  Ineligible. 

The  Board  holds  that  collateral  trust  notes  of  so-called  finance 
companies  should  not  be  accepted  by  Federal  Reserve  Banks  for 
rediscount.  Such  a  transaction  is  not  a  commercial  one. 
Bulletin,  June,  1915,  p.  72. 

7.  Authority  to  Accept. 

Authority  from  the  Federal  Reserve  Board  not  necessary  for 
a  member  bank  to  undertake  acceptance  business,  unless  the  bank 
wishes  to  exceed  50  per  cent  of  its  capital  and  surplus.  (Law 
amended.)     Bulletin,  July,  1915,  p.  126. 

8.  Discount  of  Renewals. 

Acceptance  business  of  Federal  Reserve  Banks  not  restricted 
"to  the  original  transactions  only,"  if  transaction  has  not  been 
liquidated.  When  first  acceptance  matures  member  bank  may 
renew  the  acceptance,  and  there  is  no  reason  why  a  Federal 
Reserve  Bank  may  not  discount  such  renewed  acceptance 
although  a  Federal  Reserve  Bank  must  not  engage  in  advance 
to  make  such  discount  of  a  renewal.    Bulletin,  July,  1915,  p.  126. 

9.  Notes  of  Mule  and  Cattle  Dealers  Mercantile  Paper. 

Notes  made  by  mule  and  cattle  dealers  are  mercantile  rather 
than  agricultural  paper.    Bulletin,  August,  1915,  p.  212. 

10.  Crossties  and  Lumber  Good  Security. 

Bills  drawn  for  the  purpose  of  providing  funds  to  export 
crossties  and  lumber  to  Cuba  are  eligible  for  rediscount  if 
properly  indorsed  and  otherwise  conforming  to  the  regulations 
of  the  Federal  Reserve  Board,  Such  paper,  it  is  presumed, 
would  take  the  90-day  rate.    Bulletin,  September,  1915,  p.  268. 

11.  Additional  Collateral  Security. 

The  fact  that  commercial  paper  has  the  additional  security 
of  collateral  in  no  way  affects  its  eligibility  for  rediscount. 
Bulletin,  September,  1915,  p.  268. 


FEDERAL  RESERVE  BOARD  RULINGS       199 

12.  Six  Months'  Agreement. 

A  national  bank  is  held  to  be  authorized  to  enter  into  an 
agreement  having  more  than  six  months  to  run  by  the  terms 
of  which  it  obligates  itself  for  a  period  of  time  specified  in 
the  agreement  to  accept  drafts  drawn  upon  it,  provided  such 
drafts  grow  out  of  transactions  involving  the  importation  or 
exportation  of  goods,  and  that  the  individual  drafts  have  not 
more  than  six  months  sight  to  run.  This  distinction  is  em- 
phasized: "While  a  letter  of  credit  or  credit  agreement  may 
lawfully  be  made  by  a  national  bank  which  will  extend  by  its 
terms  for  a  period  exceeding  six  months,  the  agreement  must 
not  be  of  such  a  character  as  will  impose  upon  the  holders  of 
drafts  accepted  thereimder  any  obligation  to  renew  such  drafts 
so  that  the  period  of  acceptance  shall  exceed  six  months  in 
duration  as  to  any  specified  draft."  •  Bulletin,  September,  1915, 
p.  269.    See  also  Bulletin,  November,  1916,  p.  584. 

13.  Commodity    Paper    Includes    Paper    of    Merchants    and 

Others. 

"Commodity  paper"  includes  not  only  paper  originating  with 
the  producer,  but  also  paper  of  merchants  and  others  when  the 
commodity  is  not  carried  for  speculative  or  purely  investment 
purposes.     Bulletin,  October,  1915,  p.  307. 

14.  Federal  Reserve  Banks  Determine  Eligibility. 

Federal  Reserve  Banks  must  determine  the  eligibility  of  an 
acceptance.     Bulletin,  November,  1915,  p.  362. 

15.  Evidence  from  State  Member  Banks. 

Federal  Reserve  Bank  reserves  the  right  to  ask  State  member 
banks  for  evidence  underlying  the  certification  given  it  as  to  an 
acceptance.    Bulletin,  December,  1915,  p.  406. 

16.  Foreign  Trade  Acceptance. 

Tentatively  held  that  a  90-day  sight  draft  drawn  by  a  firm  in 
Calcutta  on  a  company  in  Boston  and  accepted  by  that  firm,  cover- 
ing a  transaction  involving  the  transportation  of  merchandise 
from  Calcutta  to  Honolulu,  is  a  trade  acceptance  rather  than  a 
banker's  acceptance.  Ruling  based  upon  facts  submitted  and  sub- 
ject to  local  conditions.    Bulletin,  December,  1915,  p.  404. 

17.  Identification  of  Specific  Goods. 

Held  not  to  be  necessary  that  the  specific  goods  covered  by  an 
acceptance  based  upon  an  import  or  export  transaction  must  be 


200  ACCEPTANCES 

identified  at  the  time  of  the  acceptance.      Bulletin,  December, 
1915,  p.  405. 

18.  Goods  Involved. 

In  interpreting  the  word  "involved"  in  connection  with  the  im- 
portation or  exportation  of  goods,  upon  which  an  acceptance  has 
been  based,  it  is  held  that  goods  may  be  purchased  and  shipped 
subsequent  to  the  time  of  the  first  acceptance,  provided  that  there 
is  a  definite  bona  fide  contract  for  the  shipment  of  the  goods 
within  a  specified  and  reasonable  time.  Bulletin,  December, 
1915,  p.  405. 

19.  New  Drafts  rinancing  Original  Transaction. 

Upon  payment  of  an  acceptance  the  accepting  bank  may  for  a 
reasonable  period  accept  new  drafts  for  the  financing  of  the  orig- 
inal transaction,  even  after  the  shipment  and  delivery  of  the 
goods,  provided  such  renewals  be  stipulated  in  the  original  con- 
tract as  an  incidental  condition  of  the  transaction  of  importation 
or  exportation  upon  which  the  acceptance  is  based.  Bulletin, 
December,  1915,  p.  405.  (Modified  by  ruling  in  Bulletin,  Septem- 
ber, 1919,  p.  858,  No.  189  of  this  book.) 

20.  Good  Faith  a  Test. 

Good  faith  must  be  relied  upon  to  a  large  extent  in  determining 
whether  an  acceptance  is  based  upon  a  transaction  involving  the 
importation  or  exportation  of  goods.  Bulletin,  December,  1915, 
p.  406. 

21.  Banks  May  Ask  Assurances. 

Member  banks  may  best  protect  themselves  in  determining 
whether  acceptances  are  based  upon  the  exportatioin  or  importation 
of  goods  by  stipulating  the  right  at  times  to  ask  for  substantiation 
of  assurances  from  a  customer.    Bulletin,  December,  1915,  p.  406. 

22.  Responsibility  with  Federal  Reserve  Banks. 

Ultimate  responsiblity  in  purchasing  acceptances  held  to  rest 
with  Federal  Resei-ve  Banks.    Bulletin,  January,  1916,  p.  13. 

23.  Contract  Not  Fulfilled. 

A  member  bank  would  be  justified,  if  fully  secured,  in  accepting 
drafts  drawn  by  a  local  cotton-buying  firm  having  a  contract  to 
sell  to  foreign  buyers  if  the  transaction,  after  having  been  made 
in  good  faith,  ultimately  resulted  in  the  sale  of  the  cotton  to  an 
American  instead  of  a  foreign  purchaser.     It  was  assumed  in 


FEDERAL  RESERVE  BOARD  RULINGS      201 

connection  with  this  interpretation  of  section  13  that  the  bank 
had  received  permission  from  the  Board  to  accept  drafts  or  bills 
of  exchange  drawn  upon  it ;  that  the  cotton  buyers  had  a  contract 
to  sell  cotton  to  a  firm  of  Liverpool;  that  they  held  the  cotton 
subject  to  shipping  receipt  of  the  Liverpool  firm  and  that  because 
of  freight  rates  and  shipping  conditions  the  Liverpool  firm 
changed  its  policy  and  directed  the  sale  of  the  cotton.  Bulletin, 
January,  1916,  p.  13. 

24.  Statement  Form. 

Announcement  that  Federal  Reserve  Board  will  require  state- 
ments satisfactory  to  it  in  connection  with  acceptances  held  to 
mean  that  the  statement  shall  be  satisfactory  in  form.  Bulletin, 
January,  1916,  p.  13. 

25.  Notes  for  Farm  Tools  Eligible. 

Notes  of  farmers  or  consumers  given  for  the  purchase  price  of 
farm  tools,  agricultural  machinery,  or  other  farm-operating  equip- 
ment are  discountable  under  section  13  of  the  Federal  Reserve 
Act,  which  provides  for  notes,  bills,  or  drafts  drawn  or  issued 
for  agricultural  purposes. 

Presentation  of  notes  of  farmers  or  consumers  for  the  purchase 
price  of  farm  tools  or  agricultural  machinery  by  the  dealer,  with 
his  indorsement  for  rediscount,  does  not  change  their  classification 
as  for  agricultural  purposes.    Bulletin,  February,  1916,  p.  67. 

26.  Application  of  Section  5200. 

The  10  per  cent  limitation  imposed  by  section  5200  of  the 
Revised  Statutes  is  not  intended  to  apply  to  the  mere  acceptance 
of  a  bill  of  exchange,  but  the  provisions  of  section  5200  would 
apply  to  the  indebtedness  arising  between  the  drawer  of  the  bill 
and  the  accepting  bank  in  case  the  drawer  fails  to  furnish  funds 
with  which  to  meet  the  acceptance  at  maturity.  Bulletin,  Feb- 
ruary, 1916,  p.  64. 

27.  Nonmember  Trust  Company  Acceptances  Ineligible. 

Acceptances  drawn  by  a  manufacturer  on  and  accepted  by  a 
trust  company  not  a  member  of  the  Federal  Reserve  System,  the 
proceeds  of  which  are  to  be  used  for  purchases  of  raw  material 
and  payment  for  labor  where  the  goods  had  not  been  sold  and 
no  warehouse  receipts  or  other  instruments  could  be  furnished, 
are  held  not  to  be  eligible  for  purchase  by  a  Federal  Reserve 
Bank.     Bulletin,  February,  1916,  p.  65. 


202  ACCEPTANCES 

28.  Cattle,  a  Readily  Marketable  Commodity. 

Cattle  are  a  readily  marketable  commodity  and  a  banker's  ac- 
ceptance secured  by  a  chattel  mortgage  thereon  is  eligible  for 
rediscount  at  a  Federal  Reserve  Bank.  Bulletin,  February,  1916, 
p.  65.  (Superseded  by  ruling  in  Bulletin,  April,  1918,  p.  309, 
No.  154  of  this  book.) 

29.  Rediscounts  to  a  Reopened  Insolvent  Bank. 

The  Board  upholds  a  Federal  Reserve  Bank  in  declining  to 
give  assurance  to  the  receiver  of  an  insolvent  member  bank  that 
the  Federal  Reserve  Bank  will,  upon  the  reopening  of  the  insol- 
vent bank,  rediscount  eligible  paper  freely,  without  requiring  the 
indorsement  of  directors  or  other  additional  security.  Offerings 
should  be  considered  upon  their  merits.  Bulletin,  February,  1916, 
p.  66. 

30.  BiUs  Drawn  in  Foreign  Countries. 

Authorizing  Federal  Reserve  Banks,  pending  a  change  in  para- 
graph 5,  Regulation  T,  of  1915,  to  buy  bills  of  exchange  drawn  in 
foreign  countries  on  American  acceptors  where  in  case  it  is  im- 
possible to  obtain  information  from  the  acceptor  or  drawer  a 
satisfactory  statement  from  the  indorsing  bank  or  banker  as  to 
financial  condition  is  obtained.  Discount  rate  for  bankers'  accept- 
ances includes  domestic  acceptances.  Bulletin,  March,  1916, 
p.  111. 

31.  Section  5202,  Revised  Statutes. 

Under  section  5202,  Revised  Statutes,  a  national  bank  may  not 
borrow  as  bills  payable  in  excess  of  its  capital  stock.  Under 
Federal  Reserve  Act  it  may  rediscount  actual  items  of  paper  in 
its  possession  to  any  amount  in  the  discretion  of  the  Federal 
Reserve  Bank  of  its  district.    Bulletin,  March,  1916,  p.  112. 

32.  Mercantile  Firms  Can  Not  Discount  with  Federal  Reserve 

Banks. 

Federal  Reserve  Banks  can  not  discount  commodity  paper  di- 
rectly for  mercantile  firms.    Bulletin,  March,  1916,  p.  112. 

33.  Notes  for  Dairy  Cattle  Eligible. 

Notes  signed  by  a  farmer,  the  proceeds  of  which  are  used  for 
the  purchase  of  cows  to  be  used  as  dairy  cattle,  are  eligible  for 
rediscount  at  the  discretion  of  the  Federal  Reserve  Bank  notwith- 
standing the  fact  that  the  cattle  are  not  primarily  purchased  for 


FEDERAL  RESERVE  BOARD  RULINGS   203 

"breeding,  raising:,  fattening,  and  marketing  of  live  stock."    Bul- 
letin, March,  1916,  p.  112. 

34.  Stamp  "Trade  Acceptance"  Has  No  Value. 

The  fact  that  a  loan  company  has  stam^jed  a  bill  a  trade  accept- 
ance and  signed  as  "acceptor"  does  not  in  itself  make  it  a  trade 
acceptance,  and  being  accepted  by  a  bank  is  not  eligible  for  pur- 
chase as  a  trade  acceptance.    Bulletin,  March,  1916,  p.  112. 

35.  Must  Be  Accepted  by  Drawee. 

A  draft  to  be  eligible  as  an  acceptance  must  be  accepted  by  the 
drawee  and  not  by  any  one  else.  A  draft  drawn  on  a  land  com- 
pany and  accepted  by  a  bank  cannot  be  purchased  by  a  Federal 
Resen-e  Bank  in  the  open  market  as  a  trade  acceptance.  For 
the  same  reason  such  a  draft  is  ineligible  as  a  trade  acceptance. 
Bulletin,  March,  1916,  p.  112. 

36.  Trade  Acceptances. 

The  fact  that  importation  or  exportation  is  involved  does  not 
exclude  the  character  of  a  trade  acceptance,  and  trade  acceptances 
originating  through  importation  from  foreign  countries  which  are 
indorsed  by  banks  or  bankers  may  be  taken  within  the  range  of 
the  discount  rates  for  bankers'  acceptances.  (Amended.)  Bul- 
letin, April,  1916,  p.  168. 

37.  Limit  of  10  Per  Cent  to  One  Maker  or  Indorser. 

If  any  particular  paper  presented  by  a  member  bank  to  a 
Federal  Reserve  Bank  for  rediscount,  singly  or  added  to  the 
paper  of  the  same  makers  or  indorsers  which  the  Federal  Reserve 
Bank  has  already  rediscounted  for  said  member  bank,  amounts  to 
a  total  of  more  than  10  per  cent  of  the  unimpaired  capital  and 
surplus  of  that  bank,  the  Federal  Reserve  Bank  has  no  authority 
for  such  rediscount.     Bulletin,  May,  1916,  p.  224. 

38.  Loans  Not  Made  Directly  to  Individuals. 

Federal  Reserve  Banks  do  not  make  loans  directly  to  individ- 
uals, but  rediscount  the  paper  of  member  banks  which  include 
all  national  banks  and  such  State  banks  as  may  have  joined  the 
Federal  Reserve  System.    Bulletin,  June,  1916,  p.  272. 

39.  Rediscounts  Are  for  Face  Value. 

Paper  of  member  banks  is  rediscounted  by  Federal  Reserve 
Banks  for  its  face  value  and  without  compensation.  Bulletin, 
June,  1916,  p.  272. 


204  ACCEPTANCES 

40.  Exceptions  to  Section  5200. 

The  fact  that  a  note  or  draft  discounted  by  a  national  bank 
may  be  secured  by  cattle  would  not  of  itself  bring  it  within  the 
exceptions  to  section  5200,  Revised  Statutes,  unless  it  is  commer- 
cial or  business  paper  actually  owned  by  the  person  negotiating 
the  same  or  unless  it  is  a  bill  of  exchange  drawn  in  good  faith 
against  actually  existing  values.   'Bulletin,  July,  1916,  p.  329. 

41.  Domestic  Acceptances. 

National  banks  have  no  authority  in  law  to  accept  domestic 
drafts  of  any  kind.  (May  26,  1916;  law  later  amended.)  Bul- 
letin, July,  1916,  p.  329. 

42.  Notes  "On  or  Before"  EUgible. 

Notes  payable  "on  or  before"  a  certain  date  are  eligible  for 
rediscount  with  Federal  Reserve  Banks  provided  they  conform  to 
the  law  and  regulations  of  the  Board  in  other  respects.  Bulletin, 
August,  1916,  p.  394. 

43.  Calculation  of  Interest. 

Methods  of  calculating  interest  and  discount  in  New  York  have 
been  standardized;  number  of  days  is  calculated  by  counting  the 
nights  intervening  between  the  date  the  loan  is  made  and  the 
date  it  is  paid.  Discount  on  notes  presented  by  borrowers  and 
interest  on  call  and  time  loans  are  figured  on  a  daily  basis  with 
a  360-day  table.     Bulletin,  September,  1916,  p.  457. 

44.  Ten   Per  Cent   Limitation   Does  Not    Apply  to    Bills  of 

Exchange. 

The  aggregate  of  eligible  notes  and  bills  bearing  .the  signature 
or  indorsement  of  any  one  person,  company,  firm,  or  corporation 
rediscounted  by  a  Federal  Reserve  Bank  for  any  one  member  bank 
,  shall  at  no  time  exceed  10  per  cent  of  the  unimpaired  capital  and 
surplus  of  such  member  bank.  This  restriction  does  not  apply 
to  bills  of  exchange  drawn  in  good  faith  against  actually  existing 
values.    Bulletin,  September,  1916,  p.  457. 

45.  No  Limit  on  Rediscounts  of  Commercial  Paper  for  Any 

One  Bank. 

The  law  places  no  limitation  upon  the  amount  of  commercial 
paper  which  a  member  bank  may  rediscount  with  a  Federal 
Reserve  Bank,  but  leaves  this  to  the  judgment  of  the  officers 
of  the  Federal  Reserve  Bank.    Bulletin,  September,  1916,  p.  457. 


FEDERAL  RESERVE  BOARD  RULINGS   205 

46.  Limit  of  Acceptances  to  Be  Taken. 

Law  places  upon  the  amount  of  eligible  acceptances  which  may 
be  discounted  by  a  Federal  Reserve  Bank  for  a  member  bank  a 
limit  of  one-half  of  the  paid-up  and  unimpaired  capital  stock 
and  surplus  of  the  member  bank.  This  may,  however,  upon  ap- 
plication to  the  Federal  Reserve  Board,  be  increased  to  100  per 
cent  of  the  capital  and  surplus  of  a  member  bank.  (Amended.) 
Bulletin,  September,  1916,  p.  457. 

47.  Advances  on  Cotton  for  Export. 

Section  13  of  Federal  Reserve  Act  construed  to  justify  a 
national  bank  in  accepting  a  draft  drawn  upon  it  in  settlement 
of  advances  for  cotton  being  accumulated  by  cotton  buyei-s  for 
export.  The  fact  that  there  is  a  temporary  delay  in  actual  ship- 
ment of  goods  is  immaterial.    Bulletin,  September,  1916,  p.  458. 

48.  "Staples"  Defined. 

"Staples"  in  the  meaning  of  Regulation  Q,  series  of  1915,  in- 
clude manufactured  goods  as  well  as  raw  materials,  provided  the 
goods  are  nonperishable  and  have  a  wide,  ready  market.  This 
is  held  to  include  cotton  yarns  and  flour.  Bulletin,  October,  1916, 
p.  523. 

49.  Indorsement  on  Waiver  of  Demand,  Notice,  and  Protest. 

Simple  written  indorsement  is  considered  sufficient  in  connec- 
tion with  a  waiver  of  demand,  notice,  and  protest  as  to  its  own 
indorsement  exclusively  on  the  part  of  a  member  bank.  Bulletin, 
October,  1916,  p.  524. 

50.  Business  Paper  and  Section  5200,  Revised  Statutes. 

The  Board  finds  it  necessary  to  adhere  to  its  established  policy 
of  not  making  any  general  ruling  on  the  question  how  much  a 
bank  may  invest  in  any  particular  security.  It  held,  however, 
that  if  a  firm  is  a  bona  fide  owner  for  value  of  the  acceptances  of 
any  particular  institution  and  such  acceptances  are  sold  to  or 
discounted  with  a  member  bank  the  acceptances  could  no  doubt 
be  treated  as  commercial  or  business  paper  actually  owned  by 
the  party  negotiating  them  and  would  therefore  be  excepted  from 
the  limitations  of  section  5200,  Revised  Statutes.  Ruling  rests 
upon  the  fact  that  paper  is  actually  commercial  or  business  paper 
owned  by  the  person  negotiating  it.  (November  4,  1916.)  Bul- 
letin, December,  1916,  p.  678. 


206  ACCEPTANCES 

51.  Government  Does  Not  Fix  Interest  Rate  of  Member  Bank. 

The  Government  does  not  fix  the  rate  of  interest  which  national 
banks  may  charge  upon  loans,  but  does  approve  the  rate  of  redis- 
count at  which  paper  may  be  rediseounted  at  Federal  Reserve 
Banks.     Bulletin,  December,  1916,  p.  679. 

52.  Cattle  for  Breeding,  Grazing,  or  Fattening  as  Security. 

Loans  on  cattle  for  breeding,  grazing,  or  fattening  may  be 
made  under  the  classification  of  six  months'  agricultural  paper 
and  the  paper  be  rediseounted  by  a  member  bank  at  its  Federal 
Reserve  Bank.    Bulletin,  December,  1916,  p.  679. 

53.  Collateral  Bankers'   Acceptances — ^When  Drawn    Against 

Exports. 

A  draft  drawn  by  an  acceptance  house  to  reimburse  itself  for 
the  purchase  of  an  acceptance  based  upon  a  transaction  invohing 
the  importation  or  exportation  of  goods  cannot  legally  be  ac- 
cepted by  a  national  bank  even  though  collateraled  by  the  ac- 
ceptance purchased.     Bulletin,  January,  1917,  p.  28. 

54.  Purchase  of  Bank's  Own  Acceptances. 

A  member  bank's  own  acceptances  purchased  by  it  must  be 
treated  as  loans  and  as  such  are  subject  to  the  10  per  cent 
limitation.    Bulletin,  January,  1917,  p.  28. 

55.  Bankers'  Acceptances  Against  Bullion. 

Gold  bars  may  be  pi^operly  considered  as  goods,  and  accordingly 
60-day  bills  when  accepted  by  banks  and  bankers  against  such  a 
shipment  would  be  eligible  for  purchase  by  Federal  Reserve  Banks 
as  based  upon  or  involving  the  exportation  of  goods.  Bulletin, 
January,  1917,  p.  29. 

56.  Bills  Drawn  Against  Coin. 

Gold  coin  is  "goods"  within  the  meaning  of  section  13  of  the 
Federal  Reserve  Act,  and  therefore  a  bill  of  exchange  drawn  to 
finance  a  shipment  of  gold  coin  from  this  country  either  to 
Europe  or  to  Canada  is  eligible  for  purchase  by  a  Federal  Re- 
serve Bank  if  otherwise  in  conformity  with  the  provisions  of  law 
and  the  regulations  of  the  Federal  Reserve  Board.  Bulletin, 
January,  1917,  p.  29. 

57.  Differential  as  to  Acceptances. 

There  is  no  objection  to  a  moderate  differential,  say  one-fourth 
of  1  per  cent,  to  apply  between  member-bank  accejDtances  and 


FEDERAL  RESERVE  BOARD  RULINGS   207 

the  acceptances  of  large  nonmember  institutions  well  known 
throughout  the  country  and  whose  acceptances  necessarily  have  a 
broad  market.     Bulletin,  January,  1917,  p.  28. 

58.  Bankers'  Acceptances — Security  Therefor. 

There  is  no  objection  to  permitting  the  mills  to  substitute  other 
warehouse  receipts  for  cotton  receipts  during  the  life  of  the  ac- 
ceptance. In  purchasing  or  discounting  bankers'  acceptances  or 
other  bills  which  are  secured  by  warehouse  receipts,  etc.,  Federal 
Reserve  Banks  should  make  sure  that  the  receipt  is  issued  by  a 
warehouse  which  is  independent  of  the  borrower.  If  the  credit 
were  granted  before  the  importation  took  place,  there  would  be 
no  objection  to  continuing  or  renewing  the  acceptance  while  the 
goods  are  on  the  docks.    Bulletin,  January,  1917,  p.  30. 

59.  Trade  Acceptances  for  Advertising. 

A  draft  or  bill  of  exchange  drawn  by  a  publisher,  or  other  ad- 
vertising agency,  on  the  purchaser  of  advertising  space  and  ac- 
cepted by  such  purchaser  shall  be  considered  a  trade  acceptance, 
provided  the  advertisement  on  which  the  draft  or  bill  is  based  is 
for  the  purpose  of  promoting  or  facilitating  the  production, 
manufacture,  distribution,  or  sale  of  goods,  wares,  merchandise, 
or  agricultural  products,  including  live  stock;  and  provided  fur- 
ther that  such  advertisement  is  not  illegal  and  is  not  for  the 
purpose  of  promoting  or  facilitating  any  transaction  which  is 
prohibited  by  the  laws  of  the  State  in  which  it  is  to  be  consum- 
mated.    Bulletin,  February,  1917,  p.  114. 

60.  Limitations  Imposed  by  Section  13  of  Act. 

In  any  case  where  shipping  documents  or  warehouse  receipts 
are  held  by  the  acceptor  the  10  per  cent  limit  does  not  apply; 
so  also  in  any  case  where  the  acceptor  holds  a  trust  receipt  which 
does  not  enable  the  borrower  to  obtain  the  goods  for  his  own  use, 
the  10  per  cent  limit  does  not  apply;  but  in  any  case  where  the 
bank  holds  merely  the  ordinary  trust  receipt  which  gives,  it  only 
a  lien  on  the  goods  in  the  hands  of  the  purchaser  or  on  their 
proceeds,  the  10  per  cent  limit  should  apply.  Bulletin,  April, 
1917,  p.  286. 

61.  Trade  Acceptances  Defined. 

Only  those  trade  acceptances  which  are  drawn  at  the  time  of, 
or  within  a  reasonable  time  after,  the  shipment  or  delivery  of 


208  ACCEPTANCES 

goods  sold  can  be  treated  as  bills  of  exchange  drawn   against 
actually  existing  value.     Bulletin,  April,  1917,  p.  287. 

62.  Acceptances — Exports  Defined. 

Clean  drafts  drawn  by  an  exporter  in  Chile  for  the  purpose 
of  providing  funds  with  which  to  purchase  beans,  peas,  etc.,  from 
farmers  in  Chile,  are  ineligible  unless  the  Chilean  exporter  is 
under  contract  to  ship  the  peas,  beans,  etc.,  purchased  from  the 
farmers  in  that  country,  to  some  other  country,  and  the  member 
bank  has  a  guarantee  to  this  effect.    Bulletin,  May,  1917,  p.  378. 

63.  Where  Trade  Acceptance  Is  Payable. 

If  the  terms  of  the  original  draft  make  it  payable  at  the  bank- 
ing house  of  the  drawee  the  drawee  may  nevertheless  accept  it 
jDayable  elsewhere — as,  for  example,  at  a  Federal  Reserve  Bank — 
provided  the  acceptance  does  not  stipulate  in  terms  that  it  is  pay- 
able only  at  the  Federal  Reserve  Bank  and  not  elsewhere.  Bul- 
letin, May,'  1917,  p.  379. 

64.  Bankers'   Acceptances  Drawn  Against    Future  Importa- 

tions. 
A  national  bank  may  properly  accept  a  draft  drawn  for  the 
purpose  of  importing  goods  whether  or  not  the  sale  of  the  goods 
under  consideration  has  actually  been  consummated  at  the  time 
of  the  acceptance  of  the  draft.    Bulletin,  July,  1917,  p.  527. 

65.  Bankers'  Acceptances  Drawn  Against  Shipment  of  Goods 

from  a  Corporation  to  Its  Agent. 
A  member  bank  may  properly  accept  a  draft  drawn  against 
the  shipment  of  goods  from  a  corporation  to  its  agent  or  branch 
even  though  no  sale  of  the  goods  is  involved  in  the  transaction. 
The  right  of  the  bank  to  resell  or  reissue  such  acceptances  is, 
in  the  opinion  of  counsel,  fully  recognized  by  the  authorities,  and 
where  this  is  done  they  may  be  treated  as  acceptances  outstanding 
and  not  as  loans.    Bulletin,  September,  1917,  p.  691. 

66.  Drafts  Drawn  to  Finance  Sale  of  Goods  to  Allied  Pur- 

chasing Commissions. 
Even  if  this  transaction  did  not  involve  the  exportation  of  goods 
a  member  bank  might  accept  a  draft  drawn  for  the  purpose  of 
financing  it  if  it  involved  a  domestic  shipment  of  goods  and  if 
the  shipping  documents  are  attached  at  the  time  of  acceptance. 
An  acceptance  of  that  character  would  seem  to  be  permissible  in 


FEDERAL  RESERVE  BOARD  RULINGS       209 

any  case  where  the  goods  are  shipped  from  the  interior  to  the 
seaboard  preparatory  to  exportation.  Bulletin,  November,  1917, 
p.  878. 

67.  Drafts  Drawn  "On  or  Before  90  Days  After  Sight." 

Bills  drawn  "on  or  before  90  days  after  sight"  should  not  be 
encouraged  or  countenanced.    Bulletin,  December,  1917,  p.  949. 

68.  Trade  Acceptances  of  Retailers. 

A  bill  of  exchange  drawn  by  the  seller  of  goods  and  accepted 
by  the  purchaser  of  those  goods  is  a  ti'ade  acceptance,  regard- 
less of  whether  or  not  the  purchaser  intends  to  resell  the  goods 
or  to  use  them  for  his  own  purpose.  Bulletin,  January,  1918, 
p.  30. 

69.  Warehouse  Receipts. 

Warehouse  receipts  offered  as  security  for  bills  accepted  by 
member  banks  under  authority  of  section  13  of  the  Federal  Re- 
serve Act  must  be  issued  by  warehouses  which  are  independent 
of  the  borrower.  The  corporation  issuing  such  receipt  must  be 
organized  in  good  faith  as  an  independent  corporation,  and  its 
affairs  must  be  administered  by  duly  authorized  oflScers  and  agents 
independent  of  the  borrower  in  order  to  comply  with  the  rulings 
of  the  Board  referred  to.    Bulletin,  January,  1918,  p.  31. 

70.  Acceptance  Given  by  Acceptance  House  or  Broker. 

The  note  of  an  acceptance  house  or  broker  could  not  be  said 
to  have  been  used  for  an  industrial,  agricultural,  or  commercial 
purpose,  since  the  business  of  such  acceptance  house  or  broker  is 
not  such  as  to  come  within  anj'  of  these  classifications.  The  fact 
that  the  note  is  secured  by  eligible  paper  is  immaterial  if  the 
proceeds  are  not  used  for  one  of  the  purposes  mentioned.  Bul- 
letin, February,  1918,  p.  108. 

71.  Trade  Acceptances,  Eligibility  of,  for  Rediscount. 

The  trade  acceptance  is  an  instrument  which  carries  upon  its 
face  the  evidence  of  the  commercial  character  of  the  transaction 
which  gave  it  birth.     Bulletin,  Februaiy,  1918,  p.  109. 

72.  Porm  of  Draft. 

A  draft  made  payable  at  sight  and  accepted  by  the  drawee  is 
negotiable  even  if  it  contains  the  following  provision :  "With 
interest  at  the  rate  of  6  per  cent  per  annum  if  payment  is  de- 
layed."    Bulletin,  February,  1918,  p.  109. 


210  ACCEPTANCES 

73.  Limitations  Under  Section  5200  R.  S. 

Where  a  national  bank  has  already  loaned  10  per  cent  of 
its  capital  and  surplus  to  a  certain  company,  it  may,  while  the 
loan  is  still  outstanding,  obligate  itself  as  acceptor  on  a  draft 
drawn  by  that  same  company.  The  limitations  of  section  5200 
on  the  amount  of  money  which  may  be  borrowed  from  a  member 
bank  are  separate  and  distinct  from  and  in  no  way  restrict  the 
limitations  of  section  13  of  the  Federal  Reserve  Act  on  the 
amount  of  drafts  which  a  member  bank  might  accept  for  any  one 
firm  or  corporation.     Bulletin,  March,  1918,  p.  197. 

74.  Insurance  Premium — Trade  Acceptance  Against  Insurance. 

A  draft  drawn  by  a  casualty  company  against  a  policy  holder 
for  premiums  could  hardly  be  said  to  be  a  draft  by  the  seller 
on  the  purchaser  of  goods  sold  and  would  not,  in  the  opinion  of 
the  Board,  come  within  the  Board's  present  definition  of  a  trade 
acceptance.    Bulletin,  April,  1918,  p.  309. 

75.  Trade  Acceptance  Against  Costs  of  Installation. 

It  is  customary  for  the  seller  of  certain  goods  to  contract  for 
their  installation  and  to  include  the  cost  of  installation  in  the 
selling  price.  In  the  opinion  of  the  Board  an  acceptance  drawn 
for  the  pui'chase  price,  including  cost  of  installation,  would  come 
within  the  Board's  definition  of  a  trade  acceptance.  Bulletin, 
April,  1918,  p.  310. 

76.  Syndicate  Acceptance  Credits. 

The  Board  has  authorized  expression  of  its  views  in  accordance 
with  the  principles  outlined  in  a  memorandum  attached.  The 
banks  of  New  York  may,  during  a  period  which  can  be  declared 
ended  at  any  time,  proceed  upon  the  basis  of  this  memorandum. 
The  essential  principles  may  be  summed  up  as  follows: 

(1)  Acceptance  credits  opened  for  periods  in  excess  of  90  days 
should  only,  in  exceptional  cases,  extend  over  a  period  of  more 
than  one  year,  and  in  no  case  for  a  time  exceeding  two  years. 

(2)  Banks  which  are  members  of  groups  opening  these  credits 
should  not  buy  their  own  acceptances,  and  where  an  agreement 
is  made  with  the  drawer  for  purchase  of  acceptances  for  future 
delivery,  the  rate  should  not  be  a  fixed  one,  but  should  be  based 
upon  the  rate  ruling  at  the  time  of  the  sale. 

(3)  Transactions  covered  by  these  credits  should  be  of  a  legi- 
timate commercial  nature,  and  acceptances  must  be  eligible  accord- 
ing to  the  rules  and  regulations  of  the  Board. 


FEDERAL  RESERVE  BOARD  RULINGS   211 

(4)  Whenever  syndicates  are  fonned  for  the  purpose  of  grant- 
ing acceptance  credits  for  more  than  moderate  amounts,  Federal 
Reserve  Banks  should  be  consulted  with  regard  to  the  transaction. 
The  question  of  eligibility,  both  from  the  standpoint  of  the  char- 
acter of  the  bill  and  of  the  amount  involved,  will  be  passed  upon 
by  the  Federal  Reserve  Bank  subject  to  the  approval  in  each  cas3 
of  the  Federal  Reserve  Board.    Bulletin,  April,  1918,  p.  257. 

76a.  Acceptance  of  Drafts  Drawn  for  the  Purpose  of  Fur- 
nishing Dollar  Exchange. 

Under  the  provisions  of  Regulation  C,  Series  of  1917,  sub- 
division (B),  it  is  provided  that  any  member  bank  desiring  to 
accept  drafts  drawn  by  banks  or  bankers  in  foreign  countries  for 
the  purpose  of  furnishing  dollar  exchange  shall  first  make  appli- 
cation to  the  Federal  Reserve  Board  setting  forth  the  usages  of 
trade  in  the  respective  countries  in  which  the  drawer  banks  or 
bankers  are  located,  and  under  the  terms  of  the  law  no  member 
bank  may  accept  such  drafts  unless  it  is  required  by  the  usages 
of  trade  in  the  country  in  which  the  drawer  bank  is  located. 

If  a  national  bank  wishes  to  make  such  an  application  with 
respect  to  a  counti-y  as  to  which  no  previous  application  has  been 
granted,  it  should  submit  to  the  Board  evidence  that  the  usages 
of  trade  in  that  country  are  such  as  to  require  the  drawing  of 
drafts  of  this  character.  The  Board  has  heretofore  ruled  that 
there  is  nothing  in  the  provisions  of  section  13  of  the  Federal 
Reserve  Act  which  can  be  construed  to  permit  the  acceptance  by 
member  banks  of  drafts  drawn  merely  for  the  purpose  of  correct- 
ing adverse  exchange  conditions.  An  application  can  not  be 
granted,  therefore,  if  it  appears  that  the  drafts  are  to  be  drawn 
not  because  the  usages  of  trade  so  require  but  merely  because 
dollar  exchange  is  at  a  premium  in  the  country  where  the  drafts 
are  to  be  drawn.  This  ruling,  of  course,  has  no  bearing  upon  the 
question  of  whether  particular  drafts  are  eligible  for  acceptance 
by  member  banks  under  those  provisions  of  section  13  of  the 
Federal  Reserve  Act  which  relate  to  the  acceptance  of  drafts 
which  grow  out  of  transactions  involving  the  importation  or  ex- 
portation of  goods.    Bulletin,  August,  1920. 


CHAPTER  XIX 

OPINIONS  OF  COUNSEL  OF  THE  FEDERAL  RESERVE  BOARD  '■ 

77.  Conditions  Attached  to  and  Affecting  Negotiability  of  Bills 

of  Exchange  and  Acceptances. 

A  bill  of  exchange,  in  order  to  be  negotiable,  must  be  an 
unconditional  order  to  pay,  on  demand  or  at  a  fixed  or  deter- 
minable future  time,  a  certain  sum  of  money  to  order  or  to  bearer. 
If  payment  is  dependent  upon  the  happening  of  a  certain  con- 
tingency, the  bill  is  conditional  and  nonnegotiable.  If  payment 
is  confined  to  the  proceeds  of  a  particular  fund  and  is  not  charge- 
able to  the  general  credit  of  the  drawer,  the  bill  is  conditional 
and  nonnegotiable.  , 

A  general  acceptance  of  a  conditional  bill  or  a  conditional  ac- 
ceptance of  an  imconditional  bill  makes  the  acceptance  a  condi- 
tional one  and  destroys  its  negotiability. 

There  is  some  doubt  in  the  courts  whether  the  mere  reference 
to  a  particular  consignment  of  goods  makes  the  bill  conditional, 
some  courts  stating  that  it  is  merely  an  indication  of  the  fund 
out  of  which  the  drawee  is  to  reimburse  himself;  other  courts 
holding  that  it  makes  the  bill  conditional  because  limiting  pay- 
ment to  the  proceeds  of  the  particular  shipment  referred  to. 
There  is  no  doubt,  however,  that  a  reference,  in  general  terms, 
on  the  face  of  an  accepted  bill  to  the  fact  that  it  is  based  on  the 
exportation  or  importation  of  goods,  would  not  make  it  condi- 
tional and  nonnegotiable,  and  it  would  not,  therefore,  be  ineligible 
for  discount  under  the  provisions  of  section  13  of  the  Federal 
Eeserve  Act.    Bulletin^  May,  1915,  p.  21, 

78.  Discount  of  Acceptances  "Based  on  the  Importation  or 

Exportation  of  Goods." 

Federal  Reserve  Banks  may,  i;nder  section  13  of  the  Federal 
Reserve  Act,  discount  acceptances  based  on  the  shipment  of 
goods   (a)   between  the  United  States  and  any  foreign  country, 

^Complete  as  published  in  the  Federal  Eeserve  Bulletin,  1915-1920, 

212 


FEDERAL  RESERVE  BOARD  OPINIONS      213 

(b)  between  any  two  or  more  foreign  countries,  and  (c)  between 
the  continental  United  States  and  Porto  Rico,  the  Philippines, 
or  the  Canal  Zone;  but  not  acceptances  based  on  the  shipment  of 
goods  between  the  continental  United  States  and  Hawaii  or  be- 
tween any  two  parts  of  the  continental  United  States.  (Act 
amended  September,  1916.)     Bulletin,  June,  1915,  p.  91. 

79.  Discount  of  Acceptances  Indorsed  by  Member  Banks  Lo- 

cated in  Another  District. 

Federal  Reserve  Banks  may,  mider  the  provisions  of  section 
13,  discount  acceptances  based  on  the  importation  or  exportation 
of  goods,  provided  they  have  a  maturity  at  time  of  discount  of 
not  more  than  three  months,  and  provided  further,  that  they  are 
indorsed  by  at  least  one  member  bank.  It  is  immaterial  whether 
this  member  bank  is  located  in  the  district  of  the  Federal  Reserve 
Bank  which  is  making  the  discount  or  in  any  other  district,  the 
temi  "member  bank"  being  broad  enough  to  include  member 
banks  wherever  located. 

Such  discounts,  being  made  under  the  provisions  of  section  13, 
are  eligible  as  collateral  security  for  Federal  Resei've  notes  issued 
under  the  provisions  of  section  16.     Bulletin,  June,  1915,  p.  98. 

80.  Rediscount  of  Drafts  Payable  on  Condition. 

A  draft  made  "payable  on  arrival  of  car"  is  nonnegotiable,  not 
being  payable  at  a  determinable  future  time,  and  is  therefore 
ineligible  for  rediscount  by  a  Federal  Reserv'e  Bank.  Bulletin, 
August,  1915,  p.  219. 

81.  Transactions  Involving  the  Importation  or  Exportation  of 

Goods. 

A  transaction  in  order  to  be  the  basis  of  a  draft  or  bill  eligible 
for  acceptance  by  a  member  bank  must  itself  involve  the  importa- 
tion or  exportation  of  goods.  A  transaction  wholly  independent 
of  the  transaction  covering  the  importation  or  exportation  of 
goods  is  not  suflScient  basis  for  an  acceptance  under  the  terms  of 
section  13.  (Act  amended  September,  1916.)  Bulletin,  Septem- 
ber, 1915,  p.  276. 

82^.    Waiver  of  Demand,  Notice,  and  Protest. 

The  acceptor  of  a  bill  of  exchange  is  the  principal  debtor.  The 
law  requires  that  notice  of  demand  and  protest  be  given  to  parties 
secondarily  liable  in  case  of  dishonor.  This  right  to  receive  notice 
is  a  personal  one  which  may  be  waived  by  the  parties  entitled 


214  ACCEPTANCES 

thereto — that  is,  the  drawer  and  indorsers;  but  such  waiver  has 
no  effect  on  the  acceptor  or  principal  debtor.  Bulletin,  Septem- 
ber, 1915,  p.  277. 

83.  Negotiability  of  Bills  of  Exchange. 

The  negotiability  of  a  bill  of  exchange  is  not  affected  by  provi- 
sions which  waive  demand,  notice,  and  protest ;  which  waive  home- 
stead exemption  rights;  and  which  provide  for  the  costs  of  col- 
lection and  attorney's  fees.    Bulletin,  May,  1916,  p.  226. 

84.  Rediscount  of  the  Assignment  of  Open  Accounts. 

The  assignment  of  an  open  account  is  not  negotiable  paper  and 
is  not  eligible  for  rediscount  by  a  Federal  Reserve  Bank  under 
the  terms  of  section  13  of  the  Federal  Reserve  Act.  Bulletin, 
May,  1916,  p.  227. 

85.  Limit  on  Rediscounts  of  Commercial  or  Business  Paper. 

While  a  member  bank  may  acquire  commercial  or  business  paper 
from  the  same  person  in  excess  of  10  per  cent  of  its  unimpaired 
capital  and  surplus  (sec.  5200,  U.  S.  R.  S.),  its  Federal  Reserve 
Bank  can  not  rediscount  such  paper  bearing  the  signature  or 
indorsement  of  the  same  person  in  excess  of  that  amount  (sec. 
13,  Federal  Reserve  Act), 

Section  13,  Federal  Reserve  Act,  does  not  amend  section  5200, 
United  States  Revised  Statutes.    Bulletin,  June,  1916,  p.  274. 

86.  Own  Member  Bank  Acceptances. 

When  a  member  bank  purchases  its  own  acceptance  before 
maturity  such  acceptance  need  not  be  included  in  the  aggregate 
of  acceptances  authorized  by  section  13.  Bulletin^  August,  1916, 
p.  397. 

87.  Check  Payable  in  Exchange  at  Current  Rates. 

Checks  drawn  with  the  clause  "Payable  in  exchange  at  current 
rates,"  printed  or  stamped  upon  their  face,  are  not  valid  nego- 
tiable instruments,  since  they  are  not  made  payable  in  a  sum 
certain  in  money  as  required  by  law,  but  are  made  payable  in 
domestic  exchange.  Federal  Reserve  Banks  have  no  authority 
to  charge  such  quasi  checks  to  the  accounts  of  member  banks. 
Bulletin,  September,  1916,  p.  457. 

88.  Qualified  Acceptances. 

A  bill  of  exchange  drawn  payable  "at  sight"  and  accepted  pay- 
able in  three  months  is  a  qualified  or  conditional  acceptance,  and 


FEDERAL  RESERVE  BOARD  OPINIONS      215 

the  maker  and  prior  indorsers  are  released.  The  instrument  in 
effect  becomes  the  promissory  note  of  the  acceptor,  and  would 
not  come  within  the  exception  to  section  5200  as  a  "bill  of  ex- 
change" drawn  in  good  faith  against  actually  existing  value. 
Bulletin,  September,  1916,  p.  463. 

89.  Agricultural  Products  or  Implements. 

The  i^urchase  or  sale  of  an  agricultural  product,  or  of  imple- 
ments or  other  commodities  used  in  agriculture,  constitutes  a 
commercial  transaction.  Where  the  proceeds  of  a  note  made  by 
a  merchant  are  used  to  purchase  millet  seed  to  be  later  retailed 
or  sold,  si;ch  a  note  can  not  be  treated  as  one  given  for  an  agi'i- 
eultural  purpose  and  can  not  be  discounted  by  a  Federal  Reserve 
Bank  if  it  has  a  maturity  at  time  of  discount  of  more  than  90 
days.     Bulletin,  October,  1916,  p.  526. 

90.  Presentment  of  Bills  for  Acceptance. 

The  drawer  and  indorsers  of  a  bill  of  exchange  made  payable 
on  a  date  specified  in  the  bill  are  not  discharged  by  a  failure  to 
present  for  accei^tance,  unless  the  bill  expressly  i^rovides  that  it 
must  be  presented  for  that  pur^DOse,  or  unless  it  is  payable  else- 
where than  at  the  residence  or  place  of  business  of  the  drawee. 
Bulletin,  November,  1916,  p.  608. 

91.  Indorsement  of  Negotiable  Paper. 

An  indorsement  of  negotiable  paper  which  is  made  upon  a 
separate  piece  of  paper  attached  to  the  original  instrument  is  a 
valid  indorsement  of  such  instrument.  Bulletin,  November,  1916, 
p.  610. 

92.  Member  Bank  Acceptances. 

(a)  The  limitations  imposed  by  section  5202,  Revised  Statutes, 
on  the  liabilities  incurred  by  any  national  bank  do  not  apply  to 
acceptances  of  such  banks. 

(&)  A  member  bank  may  legally  purchase  its  own  acceptances, 
but  such  a  transaction  is  equivalent  to  a  loan  or  advance  to  the 
customer  for  whom  the  acceptance  was  made  and  the  liability  of 
such  customer  becomes  subject  to  the  limitations  of  section  5200, 
Revised  Statutes. 

(c)  The  limitations  imposed  by  section  5200,  Revised  Statutes, 
on  the  amount  of  money  which  may  be  borrowed  by  any  individ- 
ual from  a  member  bank  do  not  apply  to  acceptances  of  such 
bank. 


216  ACCEPTANCES 

{d)  The  power  of  member  banks  to  accept  drafts  or  bills  of 
exchange  should  not  be  confused  with  the  power  to  discount  the 
acceptances  of  others.    Bulletin,  December,  1916,  p.  680. 

93.  Banker's  Acceptance  Secured  by  Bill  of  Sale. 

A  banker's  acceptance  drawn  for  the  purpose  of  purchasing 
goods  secured  by  a  bill  of  sale  of  stock  in  hand  is  not  eligible 
for  purchase  by  Federal  Reserve  Banks  under  the  provisions  of 
Regulation  B,  series  of  1916.    Bulletin,  December,  1916,  p.  684. 

94.  Bills,  Demand  and  Sight,  When  to  Be  Presented. 

Demand  and  sight  bills  of  exchange  must  be  presented  for  pay- 
ment by  the  holder  within  a  reasonable  time.  Demand  and  sight 
bills  become  due  and  payable  on  the  date  on  which  they  are  pre- 
sented for  acceptance. 

If  a  member  bank  holds  demand  and  sight  drafts  for  more  than 
a  reasonable  time  after  acceptance,  they  must  be  classed  as  over- 
due paper  and  considered  in  substance  as  promissory  notes  of  the 
acceptor  subject  to  the  limitations  im^oosed  by  section  5200.  Bul- 
letin, January,  1917,  p.  31. 

95.  Trade  Acceptances  Based  on  Advertising  Space. 

The  Federal  Reserve  Board  may  jDroperly  rule  that  a  draft  or 
bill  of  exchange  drawn  by  the  seller  on  the  purchaser  of  adver- 
tising space  and  accepted  by  such  purchaser  is  a  trade  accept- 
ance.   Bulletin,  February,  1917,  p.  116. 

96.  Bills  Drawn  Against  Actually  Existing  Value. 

A  bill  of  exchange  discounted  before  acceptance  may  be  said  to 
be  drawn  against  actually  existmg  value,  within  the  meaning  of 
section  13  of  the  Federal  Reserve  Act,  when  and  only  when  it  is 
accompanied  by  shipping  documents,  warehouse  receipts,  or  other 
papers  securing  title  to  the  goods  sold.  An  accepted  bill  of  ex- 
change, unaccompanied  by  shipping  documents  or  other  such  pa- 
pers, may  be  considered  as  drawn  against  actually  existing  value 
if  drawn  against  the  drawee  at  the  time  of,  or  within  a  reason- 
able time  after,  the  shipment  or  delivery  of  the  goods  sold.  In 
this  latter  case  there  must  be  reasonable  grounds  to  believe  that 
the  goods  are  in  existence  in  the  hands  of  the  drawee  either  in 
their  original  form  or  in  the  shape  of  the  proceeds  of  their  sale. 
Bulletin,  March,  1917,  p.  195. 


FEDERAL  RESERVE  BOARD  OPINIONS      217 

97.  Interest  on  Drafts. 

A  provision  in  a  draft  or  bill  of  exchange  that  it  is  payable 
''with  interest  at  the  I'ate  of  —  per  cent  per  annum  after  maturity 
if  payment  is  delayed"  does  not  affect  the  negotiability  of  the 
instrument.     Bulletin,  March,  1917,  p.  200. 

98.  Acceptances,  Where  Payable. 

An  acceptance  to  pay  at  a  particular  place  different  from  the 
residence  of  the  acceptor  is  a  general  acceptance,  unless  it 
expressly  states  that  the  bill  is  to  be  paid  there  and  not  elsewhere, 
and  does  not  render  the  bill  nonnegotiable.  Bulletin,  April, 
1917,  p.  289. 

99.  Drafts  Payable  on  or  Before  Certain  Date. 

Drafts  payable  "ninety  days  from  date  or  before  on  five  days 
after  demand  (i.e.,  on  five  days'  notice)  by  the  holder  hereof" 
are  negotiable  and  eligible  for  discount  with  a  Federal  Reserve 
Bank.    Bulletin,  April,  1917,  p.  291. 

100.  Eligibility  of  Bankers'  Domestic  Acceptances. 

A  draft  drawn  by  the  purchaser  of  goods  against  a  national 
bank  is  not  eligible  for  acceptance  by  that  bank  under  the  pro- 
visions of  section  13  of  the  Federal  Reserve  Act  merely  because 
it  is  secured  by  a  bill  of  lading  covering  the  goods  bought. 
Bulletin,  May,  1917,  p.  380. 

101.  Bankers'  "Dollar  Exchange"  Acceptances. 

The  50  per  cent  limit  imposed  upon  the  amount  of  drafts  which 
a  member  bank  may  accept  for  the  purjDOse  of  furnishing  dollar 
exchange  is  separate  and  distinct  from  and  not  included  in  the 
limits  imposed  by  section  13  upon  the  amount  of  drafts  or  bills 
of  exchange  drawn  against  the  shipment  of  goods  or  against 
warehouse  receipts  covering  readily  marketable  staples,  which  a 
member  bank  may  accept.    Bulletin,  July,  1917,  p.  528. 

102.  Status  of  Member  Banks'  Acceptances. 

An  acceptance  which  has  been  purchased  by  the  accepting  bank 
and  subsequently  rediscounted  with  its  Federal  Reserve  Bank  is 
not  subject  to  the  limitations  of  section  5200  of  the  Re\dsed 
Statutes.    Bulletin,  September,  1917,  p.  696. 

103.  Drafts  with  Documents  Attached — Definition. 

A  provision  of  section  13  which  authorizes  any  member  bank 
to  accept  drafts  based  uj^on  the  domestic  shipment  of  goods,  pro- 


218  ACCEPTANCES 

vided  shipping  documents  are  "attached,"  should  not  be  con- 
strued so  as  to  require  that  the  documents  be  physically  fastened 
to  the  draft.  It  is  sufficient  if  the  accepting  bank  has  possession 
of  the  documents  at  the  time  of  acceptance.  Bulletin,  October, 
1917,  p.  765. 

104.  Trust  Receipts  as  Actual  Security  for  Acceptance  Trans- 

actions. 

If  an  acceptance  is  secured  by  shippmg  documents  which  are 
surrendered  by  the  acceptor  for  a  trust  receipt  which  permits  the 
purchaser  of  the  goods  to  retain  control  of  the  goods,  the  accept- 
ing bank  can  not  be  said  to  be  secured  "by  some  other  actual 
security"  as  provided  in  section  13  of  the  Federal  Reserve  Act, 
A  trust  receipt,  however,  which  does  not  permit  the  purchaser 
to  procure  control  of  the  goods,  maj'  properly  be  said  to  be  actual 
security  within  the  meaning  of  the  act.  Bulletin,  November, 
1917,  p.  881. 

105.  Drafts  to  Finance  Sales  to  the  United  States  Government. 

Drafts  drawn  in  connection  with  sales  to  the  United  States 
Government  of  lumber  or  other  material  can  not  be  treated  as 
bills  of  exchange  drawn  against  actually  existing  value  and  are 
subject  to  the  limitations  of  section  5200,  Revised  Statutes,  when 
discounted  by  national  banks.  Such  drafts  do  not  confonn  to 
the  requirements  of  commodity  paper  as  defined  by  the  Federal 
Reserve  Board  and  should  not  be  discounted  at  the  rate  prescribed 
for  such  paper.    Bulletin,  January,  1918,  p.  32. 

106.  Drafts  Drawn  on  Sales  Corporations. 

A  draft  drawn  by  a  lumber  corporation  upon  a  sales  cor- 
poration which  it  and  a  number  of  other  lumber  concerns  have 
organized  will,  when  accepted,  become  a  trade  acceptance,  even 
though  the  selling  corporation  is  a  stockholder  of  the  sales  cor- 
poration, provided  the  sales  corporation  purchases  the  lumber 
outright  from  the  lumber  corporation  and  provided,  further, 
that  the  sales  corporation  is  organized  in  good  faith  and  not 
merely  to  act  as  an  agent  for  the  purpose  of  evading  the  law. 
Bulletin,  January,  1918,  p.  33. 

107.  Bills  Payable  to  the  Order  of  the  Drawee. 

A  bill  made  payable  to  the  order  of  the  drawee  is  not  negotiable 
until  the  drawee  as  payee  has  indorsed  it.  When  it  has  been 
accepted  and  indorsed  by  the  drawee  ■  it  is  a  valid  negotiable 


FEDERAL  RESERVE  BOARD  OPINIONS      219 

instrument  in  the  hands  of  a  third  party,  and  the  drawer  is  not 
released,  since  the  terms  of  his  order  have  been  specifically  com- 
plied with.    Bulletin,  February,  1918,  p.  110. 

108.  Drafts  with  Documents  Attached — Conveyance  of  Title. 

Under  the  provision  of  section  13,  which  authorizes  any  member 
bank  to  accept  drafts  based  upon  domestic  shipment  of  goods, 
provided  shipping  documents  conveymg  or  securing  title  are 
attached,  such  documents  must  be  made  out  or  indorsed  so  as 
to  convey  or  secure  title  to  the  accepting  bank.  Bulletin,  March, 
1918,  p.  198. 

109.  Trade  Acceptance   Providing   for   Discount   if  Paid   at 

Maturity. 
A  trade  acceptance  which  consists  of  an  order  to  pay  a  certain 
amount,  which  is  the  amount  of  the  debt  minus  a  discount  for 
prompt  payment  at  maturity,  or,  if  not  paid  at  maturity,  to  pay 
a  greater  amount,  which  is  the  amount  of  the  debt  without  any 
discount,  is  an  order  to  pay  a  sum  certain  and  is  negotiable. 
Bulletin,  March,  1918,  p.  200. 

110.  Bankers'  Acceptances  Without  Documents,  as  "Accom- 

modation." 
The  acceptance  of  a  draft  by  a  member  bank  against  an 
acceptance  agreement  which  purjiorts  to  assign  to  the  bank  certain 
collateral  security,  but  which  does  not  specifically  mention  any 
security  as  assigned,  is  an  ordinary  accommodation  acceptance, 
and  is  not  authorized  by  law.    Bulletin,  April,  1918,  p.  311. 

111.  Acceptances  by  Correspondents — ^When  a  Direct  Liability. 

Drafts  accepted  by  foreign  correspondents  at  the  request,  and 
under  the  guarantee  of  a  national  bank  in  the  United  States, 
should  be  reported  as  a  direct  liability  of  such  national  bank, 
and  should  be  treated  as  subject  to  the  limitations  imposed  by 
the  Federal  Reserve  Act  on  the  acceptance  power  of  national 
banks.    Bulletin,  April,  1918,  p.  311. 

112.  Bankers'    Export  Acceptances  Defined. 

Where  a  dealer  is  engaged  in  purchasing  the  same  character 
of  goods  for  export  and  for  domestic  use,  a  member  bank  accept- 
ing his  draft  drawn  to  finance  an  export  transaction  should  Require 
proper  assurances  that  proceeds  of  draft  are  to  be  used  in  con- 
nection with  such  export  transaction  and  that  the  acceptance  will 


220  ACCEPTANCES 

be  paid  out  of  proceeds  of  sale  of  goods  exported.    Bulletin,  April, 
1918,  p.  314. 

113.  Rediscount  of  Paper  Secured  by  War  Savings  Stamps. 

Notes,  drafts,  and  bills  of  exebange  wbieh  are  secured  by  war 
savings  stamps  and  the  proceeds  of  which  were  used  to  purchase 
or  caiTy  war  savings  stamps  are  ineligible  for  rediscount  with  a 
Federal  Reserve  Bank.    June  8,  1918. 

114.  Indorsement  "Without  Recourse." 

If  a  note  is  otherwise  eligible  for  rediscount,  the  fact  that  it 
bears  a  "without  recourse"  indorsement  of  a  nonmember  bank 
will  not  affect  its  eligibility.    July  3,  1918. 

115.  BiUs  Payable  with  Attorney's  Fees  or  Collection  Charges. 

While  a  bill  containing  a  provision  for  payment  of  the  costs 
of  collection  and  attorney's  fees,  if  it  is  dishonored  at  maturity, 
is  a  valid  negotiable  instrument,  a  bill  drawn  for  a  fixed  sum 
''with  collection  charges"  is  not  a  negotiable  instrument  unless 
it  is  so  drawn  as  to  show  that  no  collection  charges  are  to  be 
included  unless  the  bill  is  dishonored  at  maturity.    July  19,  1918. 

116.  Indorsement  of  Acceptances. 

Acceptances  must  bear  the  signature  in  blank  or  to  order  of 
the  last  party  to  whom  the  acceptance  has  been  indorsed,  but  if 
the  acceptance  is  indorsed  in  blank  it  can,  of  course,  change 
ownership  from  one  holder  to  another  without  being  indorsed 
by  each  subsequent  bolder,  and  the  title  would  pass  all  the  same. 
July  12,  1918. 

117.  Drafts  Secured  by  Cattle  Notes. 

Member  banks  are  not  authorized  to  accept  drafts  of  a  cattle- 
loan  company  secured  by  notes  of  the  owner  of  the  cattle,  although 
such  notes  may  be  secured  by  a  chattel  mortgage  executed  by  the 
owner  of  the  cattle  to  the  cattle-loan  company  and  the  notes 
and  chattel  mortgage  accompany  the  draft  at  the  time  of  accept- 
ance.    July  23,  1918. 

118.  Trade  Acceptance  Providing  for  Extension  of  Time. 

A  note  or  draft  containing  a  provision  for  an  extension  of  time 
should  not  be  approved  for  general  use  by  the  Federal  Reserve 
Board.    July  25,  1918. 


FEDERAL  RESERVE  BOARD  OPINIONS      221 

119.  Trade  Acceptance  Providing  for  Discount  if  Paid  at  Cer- 

tain Time  Before  Maturity. 
A  trade  acceptance  providing  for  a  fixed  discount,  if  paid  at 
a  certain  time  before  maturity,  should  not  be  approved  for  general 
use  by  the  Federal  Reserve  Board.    August  1,  1918. 

120.  Liability  Notes  and  Bills  Rediscounted. 

A  note  or  bill  rediscounted  in  good  faith  by  a  member  bank 
"which  is  no  longer  owned  or  held  by  the  bank  need  not  be 
included  as  a  liability  of  the  maker  to  the  bank,  within  the  mean- 
ing of  section  5200,  Revised  Statutes.  Notes  or  bills  rediscounted 
under  an  agreement  to  repurchase,  or  which  are  merely  credited 
to  the  account  of  the  bank  offering  them  for  rediscount,  are  sub- 
ject to  the  limitations  of  section  5200.    August  7,  1918. 

121.  Rediscount  of  Draft  for  Railroad  Supplies. 

Where  a  railroad  company  purchasing  supplies  accepts  the 
draft  of  the  seller  and  the  seller  or  a  third  party  to  whom  the 
draft  is  sold  in  good  faith  discounts  it  with  a  member  bank,  such 
draft  is  eligible  for  rediscount  with  a  Federal  Reserve  Bank. 
August  14,  1918. 

122.  Trade  Acceptances  as  Bills  of  Exchange  Drawn  Against 

Actually  Existing  Values 

A  trade  acceptance  may  or  may  not  be  classified  as  a  bill  of 
exchange  drawn  against  actually  existing  values. 

The  distinction  is  not  important  in  so  far  as  the  limitations  of 
section  5200  are  concerned,  since  such  a  trade  acceptance  nego- 
tiated in  good  faith  by  the  bona  fide  owner  would  be  exempt  from 
the  limitations  of  section  5200  as  "commercial  or  business  paper 
actually  owned  by  the  person  negotiatmg  the  same,"  even  if  it  is 
not  exempt  as  a  "bill  of  exchange  drawn  in  good  faith  against 
actually  existing  values." 

Section  13  of  the  Federal  Reserve  Act,  however,  limits  the 
amount  of  paper  of  any  one  borrower  rediscounted  for  any  one 
bank  to  10  per  cent  of  such  bank's  capital  and  surplus ;  and  trade 
acceptances  are  subject  to  this  limitation,  unless  they  can  be 
classified  as  "bills  of  exchange  drawn  against  actually  existing 
values." 

Bills  drawn  by  the  seller  against  the  purchaser  and  accepted 
before  the  sale  or  delivery  of  the  goods  should  not  be  treated  as 
bills  drawn  against  actually  existing  values,  since  such  goods  are 
not  in  the  possession  of  the  drawee  either  in  the  original  form 


222  ACCEPTANCES 

or  in  the  shape  of  the  proceeds  of  their  sale;  except  where  the 
goods  have  passed  out  of  the  possession  of  the  drawer  and  have 
been  placed  in  storage  subject  to  the  control  or  order  of  the 
drawee.     August  21,  1918. 

123.  Stamp  Tax  on  Trade  Acceptances. 

The  following"  ruling  has  been  made  by  the  Deputy  Commis- 
sioner of  Internal  Revenue  as  to  who  should  affix  the  revenue 
stamps  to  trade  acceptances: 

Treasury  Department, 
Washington,  September  13,  1918. 
Gentlemen:  Answering  your  letter  of  the  27th  ultimo  received  by 
reference  from  the  Federal  Reserve  Board,  you  are  advised  that  the 
drawer,  as  the  person  "who  makes,  signs,  or  issues"  a  trade  accept- 
ance, should  affix  and  cancel  stamps  covering  the  tax  required 
thereon  under  subdivision  6,  schedule  A,  act  of  October  3,  1917. 

There  is  nothing  in  the  law,  however,  that  would  prevent  the  ac- 
ceptor from  affixing  the  requisite  stamps  to  a  trade  acceptance  and 
agreeing  with  the  drawer  of  the  draft  as  to  which  of  the  parties 
would  ultimately  bear  the  expense. 
Eespectfully, 

B.  C.  Keith,  Deputy  Commissioner. 

124.  Acceptance  of  Drafts  of  Food  Administration  Grain  Cor- 

poration. 
The  Federal  Reserve  Board  has  authority  to  penuit  member 
banks  to  accept  drafts  of  the  Food  Administration  Grain  Cor- 
poration secured  by  some  form  of  receipt  or  notation  on  the 
draft  itself,  signed  by  a  trustee  holding  warehouse  receipts  cov- 
ering grain  stored  in  warehouses,  identifying  it  as  a  draft  se- 
cured by  the  grain  stored.     September  16,  1918. 

125.  Drafts  Growing  Out  of  Transactions  Involving  the  Impor- 

tation or  Exportation  of  Goods. 

Drafts  drawn  under  an  agreement  whereby  the  drawer  agrees 
to  manufacture  and  import  into  the  United  States  in  time  to  meet 
the  maturity  of  such  drafts  certain  products  which  shall  have 
been  sold  by  the  shipper  and  are  to  be  ready  for  immediate 
delivery  and  consigned  to  a  firm  of  bankers  procuring  the 
acceptance  of  such  drafts  for  the  drawer  are  not  eligible  for 
acceptance  by  member  banks;  since  they  do  not  grow  out  of 
"transactions  involving  the  importation  or  exportation  of  goods" 
within  the  meaning  of  section  13  of  the  Federal  Reserve  Act. 
September  16,  1918. 


FEDERAL  RESERVE  BOARD  OPINIONS      223 

126.  Inspection  of  Goods  Covered  by  Bill  of  Lading  Drafts. 
An  express  provision  in  a  bill  of  lading  authorizing  the  con- 
signee to  inspect  the  goods  before  acceptance  of  the  draft  to 
which  the  bill  of  lading  is  attached  does  not  affect  the  negotiability 
of  the  draft.    April  19,  1919. 

127.  Documents    Attached    Acceptances    Covering    Domestic 

Shipments  of  Goods. 
A  draft  drawn  upon  a  national  bank  covering  current  domestic 
shipments  of  goods  is  not  eligible  for  acceptance  by  such  bank 
under  the  provisions  of  section  13  of  the  Federal  Reserve  Act 
unless  shipping  documents  are  attached  at  the  time  of  acceptance. 
April  29,  1919. 

128.  Acceptance  of  Drafts  Drawn  Abroad  and  Secured  by 

Foreign  Warehouse  Receipts. 

A  draft  drawn  abroad,  payable  in  the  United  States  in  dollars 
and  secured  by  a  warehouse  receipt  covering  readily  marketable 
staples  stored  in  a  warehouse  located  in  a  foreign  country,  is 
eligible  for  acceptance  by  a  member  bank  and  after  acceptance 
is  eligible  for  rediscount  by  a  Federal  Reserve  Bank  under  the 
provisions  of  section  13  of  the  Federal  Reserve  Act,  but,  under 
the  terms  of  the  Board's  present  regulations,  is  not  eligible  for 
purchase  by  a  Federal  Reserve  Bank  in  the  open  market,  under 
the  provisions  61  section  14  of  the  Federal  Resen'e  Act.  July 
25, 1919. 

129.  Renewal  of  Drafts  Drawn  by  the  Purchaser  of  Goods  and 

Secured  at  the  Time  of  Original  Acceptance  by  Ware- 
house Receipts  or  Bills  of  Lading. 
As  defined  in  an  opinion  published  on  page  380  of  the  May, 
1917,  Bulletin,  a  draft  drawn  by  the  purchaser  of  goods  is  not 
eligible  for  acceptance  merely  because  it  is  secured  at  the  time 
of  acceptance  by  a  bill  of  lading  covering  the  goods  bought.  It 
must  be  established  that  the  proceeds  of  the  draft  are  applied 
to  the  payment  of  those  goods.  No  national  bank  may  properly 
accept  the  renewal  of  a  draft  drawn  by  the  purchaser  of  goods 
and  secured  at  the  time  of  original  acceptance  by  a  bill  of  lading 
or  warehouse  receipt  unless  the  renewal  acceptance  complies  with 
the  terms  of  the  law  and  the  rulings  and  regulations  of  the  Board 
applicable  to  the  original  acceptance.  Bulletin,  January,  1920, 
p.  66. 


224  ACCEPTANCES 

130.  Future  Delivery  Warehouse  Acceptances  Covering  Goods 

Under  Contract  for  Sale  and  Delivery  at  a  Remote 
Period. 

Although  a  national  bank  may  accept  drafts  drawn  upon  it 
having  not  more  than  six  months'  sight  to  run  which  are  secured 
at  the  time  of  acceptance  by  a  warehouse  receipt  conveying  or 
securing  title  covering  readily  marketable  staples,  nevertheless, 
such  an  acceptance  must  not  be  made  subject  to  any  renewals. 
Bulletin,  March,  1920,  p.  277. 

131.  Limitation  Upon  the  Aggregate  Rediscounts  of  the  Paper 

of  One  Borrower  Made  for  Different  Member  Banks. 
A  Federal  Reserve  Bank  may  properly  decline  to  discount  for 
a  member  bank  the  j^aper  of  any  one  borrower  on  the  ground 
that  the  Federal  Reserve  Bank  has  theretofore  discounted  for 
other  member  banks  what  it  deems  to  be  a  sufficient  amount  of 
that  particular  borrower's  paper.    Bulletin,  March,  1920,  p.  277. 

132.  Rediscounts   of   Commercial   or   Business   Paper   for   a 

Member  State  Bank. 
Under  the  terms  of  section  13  no  Federal  Reserve  Bank  may 
properly  rediscount  for  any  State  member  bank  the  paper  of 
any  one  borrower  in  excess  of  10  per  cent  of  the  capital  and 
surplus  of  that  member  bank.  Bills  of  exchange  which  are  drawn 
against  actually  existing  values  are  expressly  excepted  from  this 
limitation  but  commercial  or  business  paper  must  be  included 
within  it. 

133.  Negotiability  of  a  Bill  of  Exchange  Accepted  Before  It 

Has  Been  Signed  by  the  Drawer. 
Under  the  terms  of  the  negotiable  instruments  law  a  bill  of 
exchange  may  be  accepted  before  it  has  been  signed  by  the  drawer. 

134.  Domicile  BiUs. 

Although  a  draft  drawn  by  an  American  exporter  upon  a 
foreign  buyer  and  accepted  by  that  buyer  payable  in  the  United 
States  in  dollars  may  be  technically  eligible  for  discount  under 
the  terms  of  section  13  of  the  Federal  Reserve  Act,  nevertheless, 
a  Federal  Reserve  Bank  may,  in  its  discretion,  decline  to  discount 
such  an  acceptance  on  the  ground  that  inasmuch  as  it  is  a 
domicile  bill,  it  is  not  a  desirable  investment.  Bulletin,  April, 
1920,  p.  386. 


FEDERAL  RESERVE  BOARD  OPINIONS      225 

135.  Bill  of  Lading  Drafts. 

Undertaken  by  several  of  the  Federal  Reserve  Banks  as  a  col- 
lection transaction.  The  drafts  are  credited  upon  receipt  and 
when  paid  the  sending  bank  is  charged  interest  at  the  published 
rate  for  the  time  the  draft  is  outstanding  plus  the  actual  cost 
of  collection.    Bulletin,  February,  1917,  p.  114. 

136.  Method  of  Computing  Discount. 

Aside  from  the  fact  that  New  York  and  Boston  Federal  Reserve 
Banks  figure  discount  on  a  365-day  basis  while  all  the  other 
Federal  Resei've  Banks  use  360  days,  the  methods  used  by  the 
Federal  Reserve  Banks  do  not  vary.  Discount  is  computed  on 
the  actual  number  of  days  the  paper  has  to  run,  the  date  of  pay- 
ment of  course  vai-j'ing  in  different  States  in  accordance  with 
the  laws  regarding  holidays  in  force  in  the  different  jurisdictions. 
Bulletin,  December,  1917,  p.  951. 

137.  Basis  for  Figuring  Interest  for  Rediscount  Transactions. 

In  connection  with  rediscounts  with  Federal  Reserve  Banks, 
the  point  has  been  raised  by  one  bank  that  it  is  its  habit  to 
figure  discounts  on  a  basis  of  360  days  to  the  year.  It  has  been 
decided  that  for  rediscounts  on  transactions  between  Federal 
Reserve  Banks  the  basis  of  365  days  to  the  year  should  be  applied. 
Bulletin,  February,  1918,  p.  109. 

138.  Bonds  or  Notes  of  the  United  States  as  Security  for 

Rediscounted  Paper. 

Any  member  bank  may  rediscount  with  its  Federal  Reserve 
Bank,  a  note,  draft,  or  bill  drawn  for  the  purpose  of  carrying  or 
trading  in  bonds  or  notes  of  the  United  States,  and  may  also 
procure  advances  from  its  Federal  Reserve  Bank  on  its  own 
promissory  note  secured  by  a  deposit  of  or  pledge  of  bonds  or 
notes  of  the  United  States.    Bulletin,  March,  1917,  p.  158. 

139.  Demand  Paper  Not  Eligible  for  Rediscount. 

The  board  has  ruled  that  a  demand  note  or  bill  is  not  eligible 
under  the  provisions  of  the  act,  since  it  is  not  in  terms  payable 
within  the  prescribed  90  days,  but,  at  the  option  of  the  holder, 
may  not  be  presented  for  payment  until  after  that  time.  Bulletin, 
May,  1917,  p.  378. 

140.  Notes    and    Bills   Drawn    for    Trading    in    Government 

Obligations. 
Notes,  drafts,  and  bills  of  exchange  drawn  for  the  purpose  of 
carrying  or  trading  in  bonds  or  notes  of  the  United  States  and 


226  ACCEPTANCES 

rediscounted  under  the  provisions  of  section  13  are  eligible  as 
collateral  security  for  the  issue  of  Federal  Reserve  notes.  Bulletin, 
June,  1917,  p.  495. 

141.  Indorsement  on  Bill  of  Exchange. 

An  indorsement  on  a  bill  of  exchange  which  expressly  exempts 
the  indorser  from  any  responsibility  for  the  validity  or  genuine- 
ness of  an  accompanying  bill  of  lading  or  other  paper  or  for  the 
quality,  quantity,  or  delivery  of  goods  covered  thereby,  does  not 
render  the  bill  non-negotiable  or  ineligible  for  purchase  by  a 
Federal  Reserve  Bank.    Bulletin,  June,  1917,  p.  457. 

142.  Eligible  Paper  Secured  by  Real  Estate  Mortgage. 

A  note,  draft,  or  bill  of  exchange  drawn  for  commercial  pur- 
poses and  otherwise  eligible  for  rediscount  under  the  provisions 
of  section  13  of  the  Federal  Reserve  Act  is  not  rendered  ineligible 
merely  because  it  is  secured  by  a  mortgage  on  real  estate. 
Bulletin,  June,  1917,  p.  458. 

143.  Paper  Secured  by  Warehouse  Receipts. 

Where  the  proceeds  of  loans  made  by  member  banks  are  used 
for  any  industrial,  agricultural,  or  commercial  purpose,  the  notes, 
drafts,  and  bills  of  exchange  evidencing  such  loans  are  eligible 
for  rediscount  with  a  Federal  Reserve  Bank.  Where  the  proceeds 
are  used  merely  for  speculative  purposes  such  notes  are  not 
eligible.    Bulletin,  June,  1917,  p.  456. 

144.  Paper  of  Waterworks  Company. 

If  the  proceeds  of  the  paper  have  been  or  are  to  be  used  to 
provide  funds  for  pay  roll,  purchases  of  coal,  etc.,  and  if  the 
paper  is  otherwise  in  conformity  with  the  law  and  the  provisions 
of  the  Board's  regulations,  it  is  eligible  for  rediscount  by  the 
Federal  Reserve  Bank.    Bulletin,  July,  1917,  p.  527. 

145.  Demand  Notes. 

A  note  made  payable  "on  demand,  and  if  no  demand  is  made, 

then  on  ,"  is  eligible  for  rediscount  by  a  Federal  Reserve 

Bank,  provided  the  date  to  be  filled  in  is  not  more  than  90  days 
from  the  date  of  discount,  and  provided  further  it  conforms  to 
the  other  provisions  of  law  and  the  regulations.  Bulletin,  July, 
1917,  p.  527. 

146.  Bills  Payable  with  Exchange  and  Collection  Charges  Not 

Negotiable. 
A  bill  made  payable  with  "collection  charges"  is  not  a  nego- 
tiable instrument,  though  the  Negotiable  Instruments  Law  pro- 


FEDERAL  RESERVE  BOARD  OPINIONS      227 

vides  that  an  instrument  payable  "with  exchange"  does  not  lose 
its  negotiability.     Bulletin,  November,  1917,  p.  880. 

147.  Rediscount  of  Participation  Certificate. 

There  is  no  provision  in  the  Federal  Reserve  Act  which 
authorizes  a  Federal  Reserve  Bank  to  rediscount  a  certificate  of 
participation  in  a  note,  because  even  though  the  original  note 
is  eligible  for  rediscount,  a  participation  certificate  nevertheless 
is  nothing  more  than  the  evidence  of  an  equitable  interest  in  that 
original  note,  and  does  not  in  any  way  represent  a  legal  claim 
against  the  maker  of  the  note.    Bulletin,  December,  1917,  p.  949. 

148.  Public-Service  Corporation  Paper. 

Notes  given  in  payment  of  material  or  supplies  which  are  neces- 
sary to  enable  the  public-ser\'ice  corporation  to  furnish  goods 
(light,  heat,  or  power)  which  it  sells  the  public,  and  for  which 
the  public  will  pay  at  the  end  of  30  or  60  day  periods,  might  be 
regarded  as  eligible,  provided  the  statement  of  the  corporation 
shows  a  satisfactory  proportion  of  cash  and  accounts  receivable 
against  current  liabilities.    Bulletin,  December,  1917,  p.  949. 

149.  Notes  of  Finance  or  Credit  Companies. 

The  note  of  a  finance  or  credit  company  which  is  drawn  either 
directly  or  indirectly  to  finance  some  industrial  or  commercial 
concern  in  the  transaction  of  its  business  is  not  eligible  for  redis- 
count, even  though  it  may  be  secured  by  paper  which  is  itself 
eligible  for  rediscount.    Bulletin,  March,  1918,  p.  197. 

150.  Live-Stock  Paper.  . 

The  bill  or  note  of  a  packing  company,  the  proceeds  of  which 
are  used  for  the  purchase  of  live  stock  which  is  slaughtered  upon 
purchase,  is  not  "based  on  live  stock"  within  the  meaning  of 
section  13,  and  is,  therefore,  not  eligible  for  rediscount  if  it  has 
a  maturity  in  excess  of  90  days.    Bulletin,  August,  1917,  p.  616. 

151.  Paper  Secured  by  Chattel  Mortgage. 

Any  member  bank  could  discount  a  promissory  note  secured  by 
collateral  notes,  in  turn  secured  by  chattel  mortgages  on  cattle. 
Such  a  note,  however,  would  not  be  eligible  for  rediscount  by  a 
Federal  Reserve  Bank  because  of  the  fact  that  it  is  not  drawn 
for  an  agricultural,  industrial  or  commercial  purpose,  within  the 
meaning  of  section  13,  of  the  Federal  Reserve  Act.  Bulletin, 
September,  1917,  p.  690. 


228  ACCEPTANCES 

152.  Notes  of  Farmers  for  Commodities  Used  in  Fanning. 

Where  a  farmer  makes  his  note  payable  to  the  seller  of  a 
eommoditj'  and  actually  uses  the  commodity  for  agricultural 
purposes,  such  a  note  may  be  treated  as  agricultural  paper, 
whether  discounted  with  the  member  bank  by  the  farmer  as  the 
maker  or  by  the  seller  as  the  indorser.  Bulletin,  April,  1918, 
p.  310. 

153.  Tractor  Work. 

Where  tractors  are  used  to  supplement  the  work  of  horses  or 
mules  or  are  used  altogether  instead  of  these  animals,  notes  given 
by  fai-mers  for  the  purchase  price  of  "tractors,  and  maturing 
within  six  months,  should  be  admitted  to  discount  as  agricultural 
paper.    Bulletin,  April,  1918,  p.  309. 

154.  Cattle  as  Readily  Marketable  Commodity. 

National  banks  are  not  authorized  to  accept  bills  secured  by 
chattel  mortgages  on  cattle,  and  Federal  Reserve  Banks  should 
consider  as  ineligible  bills  drawn  against  the  security  of  such 
chattel  mortgages,  whether  accepted  by  member  or  nonmember 
banks.    Bulletin,  April,  1918,  p.  309. 

155.  Commodities  Used  for  Agricultural  Purposes — Note  for 

Purchase  Price. 
A  note  given  for  the  purchase  price  of  a  commodity  can  be 
classed  as  agricultural  paper  eligible  for  rediscount  when  haAdng 
a  maturity  in  excess  of  90  days,  if  the  maker  is  to  use  the  com- 
modity for  an  agricultural  purjDose,  regardless  of  whether  the 
note  is  discounted  by  the  maker  or  by  the  indorser.  Bulletin, 
April,  1918,  p.  312. 

156.  Stamp  Tax  on  Acceptances. 

Acceptances  originating  outside  but  payable  inside  this  country 
as  well  as  acceptances  originating  inside  but  payable  outside  are 
subject  to  stamp  taxes.    Bulletin,  December,  1917,  p.  950. 

157.  Acceptances   by    Member    Banks    of    Drafts    Drawn    by 

Dealers  Engaged  in  the  Export  and  Domestic  Sale  of 

the  Same  Character  and  Class  of  Goods. 

Where  a  dealer  who  is  engaged  in  the  purchase  of  the  same 

character  and  class  of  goods  for  export  and  for  domestic  use 

desires  to  finance  the  purchase  and  sale  of  goods  to  be  exported, 

his  agreement  with  a  member  bank  accepting  such  drafts  should 


FEDERAL  RESERVE  BOARD  OPINIONS      229 

show  that  he  has  a  contract  for  the  export  of  the  goods ;  that  the 
total  amount  of  drafts  drawn  under  such  credit  will  not  exceed 
the  aggregate  amount  involved  in  the  export  transaction;  that 
the  proceeds  of  the  drafts  are  to  be  used  in  connection  with  the 
export  transaction ;  and  that  the  proceeds  of  the  sale  of  the  goods 
exported  will  be  applied  in  payment  of  the  acceptances  unless 
the  dealer  has  in  the  meantime  placed  the  bank  in  funds  to  meet 
them  at  maturity,  or  has  secured  such  acceptances  in  the  manner 
required  of  domestic  acceptances.     April  1,  1918. 

158.  Chattel  Mortgages  on  Cattle. 

"May  arrangements  be  made  for  banks  to  accept  or  make 
acceptances  based  on  chattel  mortgages,  or  so-called  cattle  loans, 
with  the  agreement  to  renew  these  acceptances  for  90  days  two 
or  three  times  ?" 

I  am  instructed  to  advise  you  that  in  the  opinion  of  the  Board 
national  banks  are  not  authorized  by  law  to  accept  drafts  or 
bills  that  are  secured  by  chattel  mortgages  on  cattle.  The  Board's 
counsel  says : 

"Under  the  terms  of  section  13  of  the  Federal  Reserv^e  Act 
national  banks  are  permitted  to  accept  drafts  in  a  domestic 
transaction  only  when  shipping  documents  conveying  or  securing 
title  are  attached  at  the  time  of  acceptance,  or  when  such  drafts 
are  secured  at  the  time  of  acceptance  by  warehouse  receipt  or 
other  such  document  conveying  or  securing  title  covering  readily 
marketable  staples.  In  the  case  under  consideration  no  shipping 
documents  are  attached,  and  in  the  opinion  of  this  office  a  chattel 
mortgage  on  cattle  is  not  a  document  similar  to  a  warehouse 
receipt  conveying  or  securing  title  to  readily  marketable  staples. 
In  the  case  of  a  chattel  mortgage  the  borrower  retains  possession 
of  the  goods  and  merely  vests  the  legal  title  as  security  for  the 
debt."    March  25,  1918. 

159.  Trade  Acceptances  in  Connection  with  Sales  on  Install- 

ment Plan. 

Referring  further  to  your  letter  of  March  21,  inclosing  a  copy 

of  a  letter  from  ,   in  which   they  inquire   about  the  use 

of  trade  acceptances  in  connection  with  the  sale  of  coffee  mills, 
etc.,  on  an  installment  plan,  I  am  instructed  to  say  that  the 
counsel  of  the  Board  reports  as  follows : 

"If  the  purchaser  is  willing  to  accept  the  draft  in  advance 
of  the  deliveiy  of  the  goods,  there  would  seem  to  be  no  reason 


230  ACCEPTANCES 

why  such  an  acceptance  should  not  be  treated  on  the  same  basis 
as  a  bill  drawn  and  accepted  after  delivery  of  such  goods." 

A  memorandum  presented  to  the  Board  on  the  same  subject 
contains  the  following  paragraph,  which  is  herewith  transmitted 
to  you  as  the  expression  of  the  Board's  views  on  this  question. 

"After  the  machines  have  been  made  and  delivered  to  the 
customer,  and  after  the  seller  has  been  notified  by  the  customer 
of  the  delivery,  then  the  seller  fills  in  his  name  on  the  acceptances 
as  drawer,  and  also  fills  in  the  date  of  maturity,  .  .  .  the  total 
installment  acceptances  amounting  to  the  agreed  price.  None  of 
these  acceptances  could  be  negotiated,  nor  in  fact  is  an  accept- 
ance at  all  until  after  the  machine  has  been  delivered  and  accepted 
by  the  purchaser.  It  would  seem  .  .  .  that  this  is  clearly  a 
case  of  a  trade  acceptance  and  shov;ld  be  entitled  to  preferential 
rates  as  such."    April  15,  1918. 

160.  Gas  Sold  by  Distributing  Company. 

The  question  presented  for  determination  is  whether  natural 
gas  actually  sold  and  delivered  by  a  distributing  company  is 
"goods  sold"  within  the  meaning  of  the  Federal  Reserve  Board's 
regulations  defining  a  trade  acceptance.  The  Board  is  of  the 
opinion  that  an  acceptance  drawn  by  a  gas-producing  company 
on  a  gas-distributing  company,  and  accepted  by  the  latter  in 
payment  for  the  gas  sold  and  delivered  is  a  trade  acceptance, 
and  that  it  is  eligible  for  rediscount  by  a  Federal  Reserve  Bank, 
provided,  of  course,  it  also  conforms  to  the  other  requirements 
of  the  Board's  regulations.    April  23,  1918. 

161.  Allied    Purchasing    Commission. 

It  appears  from  this  letter  that  the certifies  that  a  draft 

drawn  by  it  against  the  was  drawn  for  the  purpose  of 

financing  the  sale  to  the  Allied  Purchasing  Commissions  of  pack- 
ing-house products  conti'acted  for  export  to  Europe.  You  ask 
whether  this  can  be  treated  as  a  banker's  acceptance  against  goods 

for  export.    It  is  assumed  that  the  firm  of has  no  contract 

to  export  and  that  its  transaction  is  completed  when  its  sale  is 
made  to  the  Allied  Purchasing  Commission. 

This  case  appears  to  be  covered  by  opinion  of  counsel  approved 
by  the  Board  and  published  in  the  September,  1915,  issue  of  the 
Federal  Reserve  Bulletin^  page  276,  volume  1. 

In  each  of  the  cases  submitted  by  you  it  appears  that  the  con- 
tract between  the  seller  of  the  goods  who  draws  the  draft  and 


FEDERAL  RESERVE  BOARD  OPINIONS      231 

the  purchaser  is  entirely  independent  of  the  contract  for  the 
export  of  the  goods.  This  being  true,  the  draft  would  have  to 
be  treated  as  drawn  in  a  domestic  transaction,  and  the  drafts 
should  be  accompanied  by  shipping  documents  or  secured  by 
warehouse  receipts  or  other  similar  documents  conveying  and 
securing  title  when  accepted  by  the  drawee  bank. 

A  different  situation  would,  of  course,  be  presented  if  the 
drawee  bank  accepted  the  drafts  at  the  instance  of  the  pur- 
chaser of  the  goods,  the  purchaser  having  a  contract  to  export 
such  goods.  In  such  case,  the  drafts  would  grow  out  of  a 
transaction  involving  the  export  of  the  goods  and  could  be 
accepted  by  the  drawee  bank  under  authority  of  section  13  of  the 
Federal  Reserve  Act.    April  10,  1918. 

162.    Acceptance    by    Member    Banks    of    Drafts    Drawn    in 
Transactions  Involving  Export  of  Goods. 

A  dealer  having  drawn  drafts  accepted  by  a  member  bank  in 
an  export  transaction  should  be  given  the  option,  with  the  con- 
sent of  the  accepting  bank,  to  secure  such  drafts  in  the  manner 
required  of  those  drawn  in  domestic  transactions  if  he  wishes 
to  use  the  proceeds  derived  from  the  sale  of  the  goods  exported 
for  purposes  other  than  the  payment  of  such  acceptances. 

It  appears  fi'om  your  letter  that  the  Bank  of  is  not 

a  member  bank.  You  ask  whether  this  fact  would  alter  the 
ruling  of  the  Federal  Reserve  Board  contained  in  letter  to  you 
dated  April  24. 

In  reply  you  are  advised  that  in  the  opinion  of  the  Board 
the  limitations  contained  in  section  13  of  the  Federal  Reserve 
Act  on  the  rediscount  of  paper  bearing  the  signature  or  indorse- 
ment of  any  one  borrower  should  not  be  held  to  refer  to  the 
indorsement  of  a  nonmember  bank  on  paper  rediscounted  with 
a  member  bank. 

It  is  true  that  in  such  case  the  nonmember  bank  is  contingently 
liable  if  the  paper  is  not  paid  at  maturity,  but  the  Board  is 
inclined  to  the  view  that  this  language  refers  to  paper  bearing 
the  signature  or  indorsement  of  borrowers  or  customei's  of  the 
member  bank  and  not  to  the  indorsement  of  other  banks.  A  non- 
member  bank  could  not,  of  course,  obtain  indirect  accommoda- 
tion from  the  Federal  Reserve  Bank  through  the  medium  or 
agency  of  a  member  bank  except  with  the  permission  of  the 
Federal  Reserve  Board,  but  if  a  member  bank  had  acquired 
eligible  paper  in  due  course  by  rediscount  from  a  nonmember 


232  ACCEPTANCES 

bank  the  member  bank  should  hardly  be  precluded  from  redis- 
eounting  this  paper  with  the  Federal  Resei'\'e  Bank  because  it 
bears  the  indorsement  of  the  nonmember  bank. 

The  fact  that  this  inquiry  is  submitted  by  the  Bank  of , 

a  nonmember  bank,  may  indicate  a  desire  on  its  part  to  obtain 
accommodation  from  the  Federal  Reserve  Bank  through  one  of 
its  correspondent  member  banks.  This  being  true,  it  may  be 
well  to  call  its  attention  to  the  fact  that  if  this  is  its  purpose, 
it  will  be  necessary  to  obtain  the  consent  of  the  Federal  Reserve 
Board.    May  1,  1918. 

163.  Acceptance  of  Drafts  Against  Sugar  in  Bond. 

It  is  the  understanding  of  this  office  that  sugar  referred  to 
is  placed  in  bond  under  transit  entry  and  warehouse  receipt 
issued  by  collector  in  negotiable  form,  but  sugar  can  not  be 
withdrawn  for  domestic  sale  or  consumption  without  special  per- 
mission of  Treasuiy  Department.  Board  is  of  opinion  that 
member  banks  may  legally  accept  drafts  drawn  against  security 
of  such  warehouse  receipt  properly  assigned.    May  7,  1918. 

164.  Bills  Payable  Elsewhere  Than  in  the  United  States. 

You  are  advised  that  under  the  regulations  of  the  Federal  Re- 
serv^e  Board  defining  bankers'  acceptances,  any  bill  which  is  pay- 
able elsewhere  than  in  the  United  States  would  not  be  eligible  for 
purchase  as  a  bankers'  acceptance,  under  the  provisions  of  regu- 
lations A  and  B,  series  of  1917,  even  though  eligible  in  all  other 
respects. 

The  acceptance  to  which  you  refer,  however,  might  properly 
be  purchased  as  a  bill  of  exchange  payable  in  a  foreign  country 
in  accordance  with  the  provisions  of  Special  Instructions  No.  2 
of  1916,  subsection  (b),  printed  on  page  529  and  530  of  the 
October,  1916,  Bulletin,  May  11,  1918. 

165.  Discount  of  Acceptances  Paid  Elsewhere  Than  at  Federal 

Reserve  Bank. 

The  discount  committee  of  the  Federal  Reserve  Bank  has 
reported  that,  in  its  opinion,  "Federal  Reserve  Banks  should 
insist  that  acceptances  when  due  should  be  paid  by  checks  on  the 
local  Federal  Resei-ve  Bank,  in  order  that  they  may  be  charged 
to  the  account  of  the  acceptor  on  the  day  of  maturity,  or  else 
that  acceptances  should  be  paid  by  checks  through  the  clearings. 
If  an  arrangement  on  these  lines  can  not  be  perfected.  Federal 
Reserve  Banks  ought  to  be  required  to  add  one  day  to  the  actual 


FEDERAL  RESERVE  BOARD  OPINIONS      233 

number  of  days  the  acceptance  has  tO'  run  when  bought,  so  as 
to  make  up  for  the  loss  of  interest  incurred  in  collecting  in 
this  manner." 

This  report  has  been  agreed  to  by  the  Board,  and  your  bank 
is  requested,  in  buying  acceptances,  to  charge  discount  for  one 
additional  day,  except  in  cases  where  satisfactoiy  an-angements 
are  made  to  make  actual  cash  payment  at  the  Federal  Reserve 
Bank  on  the  day  of  maturity.    May  7,  1918. 

166.  Warehouse  Receipts  for  Canned  Goods  as  Security. 

It  appears  that  a  certain  concern  engaged  in  the  canned  goods 
business  proposes  to  set  aside  part  of  its  readily  marketable 
goods  and  materials  not  necessary  for  immediate  purposes  and 
to  place  them  in  storage  with  a  lessee  of  part  of  its  premises. 
The  lessee  is  then  to  issue  warehouse  receipts  to  the  owners  of 
the  goods,  which  receipts  are  to  be  used  as  seeuritj^  for  drafts 
drawn  against  the  member  bank  and  accepted  by  that  bank  under 
authority  of  section  13  of  the  Federal  Reserve  Act. 

You  desire  to  be  informed  whether  such  a  plan  would  in  the 
opinion  of  the  Federal  Reserve  Board  meet  with  the  require- 
ments of  the  statute. 

In  reply,  you  are  ad\'ised  that  if  the  premises  in  question  are 
actually  turned  over  to  the  lessee  under  a  bona  fide  lease,  the 
lessee  being  independent  of  the  borrower  and  having  entire 
custody  and  control  of  the  goods,  there  would  seem  to  be  no  ob- 
jection to  a  member  bank  accepting  drafts  drawn  against  the 
security  of  warehouse  receipts  issued  by  such  lessee.  It  should, 
however,  be  ex}Dressly  understood  and  agreed  that  the  borrower 
shall  not  have  access  to  the  premises  except  with  the  pennission 
of  the  lessee  and  that  he  shall  exercise  no  control  of  any  sort  over 
the  goods  against  which  warehouse  receipts  are  issued.  The 
warehouse  receipt  must,  of  course,  be  in  form  to  properly  convey 
and  secure  title  to  the  bank.    June  10,  1918. 

167.  Rate  on  Paper  of  Acceptance  Corporation. 

My  own  feeling  in  the  matter  is  that  acceptances  of  this  cor- 
poration ought  to  be  dealt  with  exactly  as  would  be  the  accept- 
ances of  a  prime  private  banker.  These  acceptance  corporations 
are  in  the  same  relation  to  the  Federal  Resei've  system  as  the 
private  bankei-s.  They  can  not  become  members,  but,  inasmuch 
as  they  expect  to  give  you  full  information  about  their  own 
financial  standing  and  the  nature  of  their  acceptances,  and  as 


234  ACCEPTANCES 

they  exercise  a  most  important  function  for  the  further  develop- 
ment of  our  acceptance  business  and  discount  market,  their 
operation  ought  to  be  encouraged  in  every  respect. 

I  do  not  think,  therefore,  that  it  would  be  proper  to  dis- 
criminate against  their  acceptances  when  they  reach  you  properly 
indorsed  by  a  bank  or  banker.  If  they  should  be  offered  to 
you  without  any  indorsement,  then  indeed,  I  would  discriminate 
against  them — at  least  at  the  extent  of  one-fourth  per  cent  in  the 
discount  rate,  if  not  more. 

As  you  know,  I  am  very  anxious  to  see  adopted  in  growing 
measure  the  habit  of  Federal  Reserve  Banks  to  insist  upon  the 
third  signature  for  all  the  acceptances  that  they  buy. 

P.S. — Since  dictating  the  above,  I  have  had  an  opportunity 
of  discussing  this  letter  with  the  members  of  the  Board,  and  they 
are  in  accord  with  the  sentiments  that  I  have  expressed.  It  is, 
of  course,  understood  that  the  acceptance  corporation  will  publish 
its  reports  and  that  you  will  keep  yourself  fully  advised  as  to 
its  assets  and  obligations.  That  will,  of  course,  guide  your 
board  of  directors  in  its  judgment  as  to  how  large  an  amount 
of  these  acceptances  it  will  be  willing  to  take  from  time  to  time. 
May  31,  1918. 

168.    Releasing  Documents. 

In  reply  you  are  advised  that  inasmuch  as  the  statute  merely 
requires  the  accepting  bank  to  be  secured  in  domestic  transactions 
by  shipping  documents  or  warehouse  receipts  at  the  time  of 
acceptance  the  bank  would  no  doubt  have  the  right,  if  it  became 
necessary  to  do  so,  to  release  either  the  shipjDing  document  or 
the  warehouse  receipt,  provided  the  draft  or  drafts  accepted 
for  one  person  did  not  exceed  10  per  cent  of  the  capital  and 
surjjlus  of  the  accepting  bank.  This  is  a  question,  however,  which 
should  be  determined  by  the  bank  itself. 

It  is  no  doubt  necessary  in  some  instances  for  the  bank  to 
release  the  shipping  documents  under  some  agreement  with  its 
customer  in  order  that  the  transaction  may  be  consummated. 
There  would  seem  to  be  much  less  reason  for  releasing  the  ware- 
house receipts,  and  the  banks  might  very  properly  adopt  the 
rule  not  to  release  warehouse  receipts  other  than  in  exceptional 
cases.  In  any  event,  this  is  purely  a  matter  of  agreement  as 
between  the  bank  and  its  customers.  The  Federal  Resei'\^e  Bank 
in  rediscounting  such  acceptances  may  reasonably  take  into  con- 
sideration   the    question    whether    or   not    they    are    secured    or 


FEDERAL  RESERVE  BOARD  OPINIONS      235 

unsecured  at, the  time  they  are  offered  for  rediscount.     May  31, 
1918.    See  also  Regulation  A,  Series  of  1920,  Section  B  (b)   (3). 

169.  Receipt  of  Custodian  of  Wool  as  Warehouse  Receipt. 

Receipt  is  acknowledged  of  your  letter  of  the  31st  ultimo,  and 
I  have  to-day  wired  you  as  follows,  which  I  now  confirm : 

Your  letter  31st.  It  being  understood  that  wool  is  stored  in 
buildings  under  control  of  custodian  entirely  independent  of 
borrower,  custodian's  certificate  or  receipt,  if  issued  in  proper 
form  to  convey  or  secure  title,  may  be  treated  as  a  warehouse 
receipt  within  the  meaning  of  section  13  of  the  Federal  Reserve 
Act,  and  acceptance  of  member  bank  under  such  conditions 
would  be  eligible  for  rediscount.    June  3,  1918. 

In  reply,  you  are  advised  that  if  the  premises  in  question  are 
actually  turned  over  to  the  lessee  under  a  bona  fide  lease,  the 
lessee  being  independent  of  the  borrower  and  having  entire  cus- 
tody and  control  of  the  goods,  there  would  seem  to  be  no  objection 
to  a  member  bank  accepting  drafts  drawn  against  the  security 
of  warehouse  receipts  issued  by  such  lessee.  It  should,  however, 
be  expressly  understood  and  agreed  that  the  borrower  shall  not 
have  access  to  the  premises  except  wdth  the  pennission  of  the 
lessee  and  that  he  shall  exercise  no  control  of  any  sort  over  the 
goods  against  which  warehouse  receipts  are  issued.  The  ware- 
house receipt  must,  of  course,  be  in  form  to  properly  convey  and 
secure  title  to  the  bank.     June  10,  1918. 

170.  Form  of  Trade  Acceptance. 

Various  clients  of  ours  send  their  trade  acceptances  to  all 
States  of  the  Union  and  wish  to  have  them  so  worded  that  it 
would  be  proper  for  a  bank  in  any  State,  including  the  State 
where  the  negotiable-instrument  law  has  not  been  enacted  or  it 
has  been  modified,  to  pay  the  acceptance  without  previously  notify- 
ing the  acceptor. 

Will  you  advise  me,  in  your  opinion,  if  the  wording  in  either 
form  of  indorsement,  as  noted  below,  should  be  sufficient  warrant 
for  the  bank  to  pay  the  acceptance  from  funds  of  the  acceptor 
in  their  hands  without  notification  to  the  acceptor? 

Do  you  see  any  advantage  in  one  form  over  the  other,  or  can 
you  suggest  any  improvement  in  the  forms  as  given? 


236  ACCEPTANCES 

[Form  1.] 

Accepted  at >191 

BanJi  where  payable 

(Without  further  notice  to  acceptor) 
Address  of  bank 

(If  no  bank,  address  of  acceptor) 
Name 

(Acceptor's  authorized  signature) 
By 

[Form  2.] 

Accepted  at >  l"l 

Bank  where  payable 

(If  no  bank,  address  of  acceptor) 
Address - 

(Pay  as  specified,  charge  to  the  account  of) 
Name 

(Acceptor's  authorized  signature) 

By 

June  5,  1918. 

Receipt  is  acknowledged  of  your  letter  of  the  5th  instant  out- 
lining two  forms  of  trade  acceptances  and  requesting  an  expres- 
sion of  the  Board's  preference.  The  matter  was  referred  to 
counsel,  and  the  Board  concurs  with  his  opinion  that  Foitq  2 
would  seem  to  be  the  most  desirable,  since  it  contains  a  specific 
request  to  pay  the  draft,  instead  of  a  mere  implied  request  or 
waiver  of  further  notice.    June  25,  1918. 

171.  Paper  Covering  Sale  of  Agricultural  Implements. 

You  ask  whether  the  six  months'  matui'ity  privilege  as  applied 
to  agricultural  paper  applies  to  any  sales  that  a  manufacturer 
of  agricultural  implements  might  sell  to  a  dealer  for  resale  by 
him  to  a  farmer. 

In  reply  you  are  advised  that  under  the  rulings  of  the  Board 
such  paper  would  have  to  be  treated  as  commercial  and  not  as 
agricultural  paper  and  could  not  be  rediscounted  with  a  Federal 
Reserve  Bank  if  it  had  a  maturity  of  more  than  90  days.  Sep- 
tember 26,  1918. 

172.  Acceptance  of  Drafts  by  State  Bank  Members. 

In  reference  to  the  condition  attached  to  your  membership  in 
the  Federal  Reserve  System  to  the  effect  "that  in  no  event  shall 
the  aggregate  amoimt  of  domestic  acceptances  outstanding  at 
one  time  exceed  50  per  cent  of  the  capital  and  surplus  of  the 
bank." 


FEDERAL  RESERVE  BOARD  OPINIONS      237 

This  condition  relates  to  drafts  or  bills  drawn  against  your 
bank  in  domestic  transactions  and  accepted  by  your  bank.  It 
does  not  relate  to  drafts  drawn  by  an  individual  against  some 
other  drawee  which  are  accepted  by  the  drawee  and  discounted 
by  you. 

The  Federal  Resei-ve  Board  is  without  authority  to  permit  a 
member  bank  to  accept  drafts  drawn  against  it  in  domestic  trans- 
actions in  excess  of  50  per  cent  of  the  capital  and  surplus  of 
the  accepting  bank.  It  may  authorize  a  member  bank  to  accept 
drafts  up  to  100  per  cent,  which  amount  may  include  both  those 
which  gi-ow  out  of  transactions  involving  the  exportation  or 
importation  of  goods  and  those  which  grow  out  of  domestic  trans- 
actions; but  the  statute  limits  specifically  the  amount  that  may 
be  accepted  in  domestic  transactions  to  50  per  cent  of  the  capital 
and  surplus  of  the  accepting  bank.     October  5,  1918. 

173.  Draft  Drawn  for  Purpose  of  Creating  Dollar  Exchange. 

Permission  granted  to  a  member  bank  with  respect  to  any 
country  entitles  it  to  exercise  similar  accepting  powers  with 
respect  to  all  countries  that  have  been  or  may  hereafter  be 
designated  by  the  Board  as  countries  whose  usages  of  trade 
require  the  furnishing  of  dollar  exchange. 

174.  Revenue  Stamps  on  Drafts  Drawn  to  Finance  Sales  of 

Goods  to  Allied  Purchasing  Commission. 
(To  Federal  Reserve  Banks.) 

The  Board's  attention  has  been  called  to  the  fact  that  in  some 
districts  banks  are  requiring  revenue  stamps  to  be  affixed  to  drafts 
drawn  to  finance  sales  of  goods  to  the  Allied  Purchasing  Com- 
mission, while  in  others  this  requirement  is  not  enforced  by  the 
banks. 

It  is,  of  course,  desirable  that  the  practice  should  be  uniform. 
Attention  is,  therefore,  called  to  the  ruling  of  the  Commissioner 
of  Internal  Revenue,  published  on  page  614  of  the  July,  1918, 
Bulletin,  which  reads  as  follows : 

Referring  to  your  letter  of  June  5  and  my  acknowledgment  of 
June  10,  it  seems  from  Mr.  Curtis's  letter  that  under  credit  agree- 
ments conforming  with  the  regulations  of  the  Federal  Reserve 
Board  packers  may  draw  bills  of  exchange  on  domestic  banks 
against  sales  of  goods  to  the  Allied  Purchasing  Commission,  such 
bills  running  for  a  period  of  time  covering  approximately  the 


238  ACCEPTANCES 

transit  of  the  shipment  from  the  interior  point  to  the  seaboard, 
where  the  goods  are  taken  on  board  ship  for  the  ocean  voyage 
at  the  convenience  of  the  Allied  Purchasing  Commission. 

In  Wm.  E.  Peck  &  Co.  (Inc.)  v.  Lowe,  decided  in  the  United 
States  Supreme  Court  May  20,  1918,  which  held  that  the  income 
tax  of  1913  was  valid  as  applied  to  net  income  derived  from  sales 
in  foreign  commerce,  the  court  has  occasion  to  discuss  the  effect 
of  the  constitutional  prohibition  against  taxing  articles  exported, 
and  it  referred  to  and  distinguished  certain  of  its  former  de- 
cisions on  the  subject.  It  concluded  that  when  the  tax  is  not 
laid  on  the  articles  themselves  while  in  course  of  exportation 
the  true  test  of  its  validity  is  whether  it  so  directly  and  closely 
bears  on  the  process  of  exporting  as  to  be  in  substance  a  tax  on 
the  exportation.  In  the  present  circumstances  it  can  probably 
fairly  be  said  that  the  tax  on  the  drafts,  although  they  are  to  be 
paid  before  the  actual  ocean  voyage  begins,  bears  so  directly  and 
closely  on  the  process  of  exporting  as  to  be  in  substance  a  tax 
on  it.  The  goods  are  doubtless  "in  course  of  exportation"  from 
the  time  the  first  carrier  receives  them. 

The  same  principle  would  seem  to  apply  as  in  the  case  of  the 
transportation  tax.  In  article  31  of  Regulations  No.  42  rules  for 
determining  when  property  may  be  deemed  to  be  in  the  course 
of  exportation  are  laid  down,  and  apparently  the  present  situa- 
tion is  within  their  scope. 

It  is  accordingly  held  that  the  stamp  tax  imposed  by  sub- 
division 6  of  schedule  A  of  Title  VIII  of  the  act  of  October  3, 
1917,  does  not  attach  to  drafts  on  domestic  banks  in  connection 
with  the  shipment  of  articles  from  the  interior  to  the  seaboard, 
where  such  articles  have  been  sold  to  the  United  States  agent 
of  a  foreign  purchaser  for  export  under  circumstances  entitling 
the  transportation  within  the  United  States  to  exemption  from 
the  transportation  tax.       September  16,  1918. 

175.    Shipping  Docmneiits  Held  by  Bank. 

Your  letter  of  the  7th  instant  was  duly  received  and  the  ques- 
tion raised  was  referred  to  counsel,  with  whom  the  Board 
agrees  in  the  opinion  that  "it  is  entirely  consistent  with  the  pur- 
poses of  the  act  and  a  sufficient  compliance  with  its  terms  if 
shipping  documents  are  in  the  possession  of  the  bank  and  the 
bank  has  a  lien  on  the  property  represented  by  such  documents 
at  the  time  that  such  bill  is  accepted.  If  placed  in  the  possession 
of  the  bank's  agent  and  under  the  control  of  the  bank  such  docu- 


FEDERAL  RESERVE  BOARD  OPINIONS      239 

ments  could  clearly  be  considered  as  in  the  possession  of  the 
bank.  .  .  .  There  would  seem  to  be  no  greater  reason  for  re- 
quiring shipping  documents  or  warehouse  receipts  to  be  physically 
attached  or  fastened  to  the  bill  than  there  is  for  requiring  other 
documents  securing  such  bill  to  be  attached  or  fastened."  Care 
should,  however,  be  taken  that  the  documents  be  held  for  ac- 
count of  the  accepting  bank  by  a  third  party  who  is  in  no  way 
interested  in  the  acceptance  transaction.  A  trust  receipt  of  the 
party  for  whom  the  acceptance  is  made  would  not  be  looked 
upon  with  favor  by  the  Board.    September  19,  1917. 

176.  Eligibility  of  Drafts  Drawn  Under  Credits. 

Drafts  drawn  under  the  credit  opened  by  certain  banks  to 
finance  the  Cuban  sugar  crop  are  eligible  for  rediscount  with  a 
Federal  Reserve  Bank  when  accepted  by  the  bank  against  which 
they  are  drawn.  In  this  case  the  sugar  in  question  was  sold  to 
the  United  States  Equalization  Board  for  shipment  to  the  United 
States  or  United  Kingdom  under  contract  entered  into  between 
the  purchasers  and  the  Equalization  Board  through  the  agents 
of  the  former  in  New  York.    January,  1919. 

177.  Trade  Acceptances. 

A  trade  acceptance  containing  the  statement  that  "the  obliga- 
tion of  the  acceptor  hereof  arises  out  of  the  purchase  of  goods 
from  the  drawer  as  per  invoices,  a  record  of  which  is  given  in 
the  subjoined  statement,"  is  a  valid  and  desirable  acceptance 
when  offered  with  the  "subjoined  statement"  detached  in  ac- 
cordance with  directions  in  the  form. 

An  acceptance  to  pay  at  a  particular  place  different  from  the 
residence  of  the  acceptor  is  a  general  acceptance,  unless  it  ex- 
pressly states  that  the  bill  is  to  be  paid  there  and  not  elsewhere, 
and  does  not  render  the  bill  non-negotiable. 

The  following  is  the  opinion  of  the  counsel: 

December  20,  1918. 
An  opinion  is  asked  on  the  following  questions : 
1.  Whether  a  trade  acceptance  containing  the  statement  that 
"the  obligation  of  the  acceptor  hereof  arises  out  of  the  purchase 
of  goods  from  the  drawer  as  per  invoices,  a  record  of  which  is 
given  in  the  subjoined  statement,"  is  a  valid  and  desirable  ac- 
ceptance when  offered  with  the  "subjoined  statement"  detached 
in  accordance  with  the  directions  in  the  form? 


240  ACCEPTANCES 

2.  Should  a  bank  or  bill  house  have  any  hesitancy  now,  in 
view  of  the  variant  legal  rulings  or  decisions,  in  purchasing  a 
bill  payable  in  New  York  drawn  on  a  firm  in  Cleveland,  without 
the  language  suggested  by  the  trade-acceptance  council  to  cover 
this  point? 

Considering  these  questions  in  the  foregoing  order,  (1)  Section 
3  of  the  negotiable  instruments  law  provides  in  part  as  follows: 

"An  unqualified  order  or  promise  to  pay  is  unconditional 
within  the  meaning  of  this  act,  though  coupled  with  ...  a  state- 
ment of  the  transaction  which  gives  rise  to  the  instrument." 

In  accordance  with  this  section,  it  has  been  held  that  the  words 
"as  per  tenns  of  contract,"  written  after  the  words  "value  re- 
ceived" on  the  face  of  a  promissoiy  note  by  the  maker  before  it 
is  delivered,  do  not  destroy  the  negotiability  of  the  note  or  make 
its  payment  to  a  holder  in  due  course  conditional  upon  the  per- 
formance of  the  contract  intended  to  be  referred  to  by  the  maker. 
(National  Bank  of  Newbui-y  v.  Wentworth,  218  Mass.,  30,  cited 
with  approval  in  Crawford's  Annotated  Negotiable  Instruments 
Law,  p.  18.) 

By  analogy,  the  "subjoined  statement"  referred  to  in  the  case 
under  consideration  may  be  treated  as  a  part  of  the  statement 
of  the  transaction  giving  rise  to  the  draft.  Such  a  statement, 
under  the  better  authorities,  is  not  an  essential  part  of  the  draft, 
and  to  detach  it  should  not,  therefore,  destroy  its  negotiability. 
It  could  not  be  treated  as  an  unauthorized  alteration  of  the  ac- 
ceptance, because  the  order  of  the  drawer  in  the  form  submitted 
contains  specific  authority  to  "detach  this  memorandum  from  the 
trade  acceiDtance  before  discounting  or  depositing  it  for  collec- 
tion." The  drawee,  therefore,  assents  to  the  order  of  the  drawer, 
and  in  the  opinion  of  this  office  such  an  acceptance  may  be 
treated  as  negotiable. 

The  Board  has  heretofore  approved  a  form  of  trade  acceptance 
containing  the  statement  that  it  is  drawn  "in  settlement  of  the 

purchase  of  goods  as  billed  in  our  invoice  No. ,  dated ." 

(See  Federal  Reserve  Bulletin,  May,  1917,  p.  378.) 

The  same  general  principles  seem  to  be  involved  in  the  present 
case. 

In  answer  to  question  (2),  this  office,  in  an  opinion  published 
in  the  April  (1917)  Federal  Reserve  Bulletin,  page  289,  reached 


FEDERAL  RESERVE  BOARD  OPINIONS      241 

the  conclusion  that  an  acceptance  to  pay  at  a  particular  place 
different  from  that  named  in  the  draft  is  a  general  and  not  a 
qualified  acceptance  unless  the  acceptor  expressly  states  that  the 
bill  will  be  paid  at  the  place  designated  by  him  and  not  else- 
where. 

As  some  counsel  expressed  some  uncertainty  as  to  the  correct- 
ness of  this  view,  the  trade-acceptance  council  recommended  that 
the  drawer  incorporate  in  the  body  of  the  draft  authority  for 
the  drawee  to  make  such  an  acceptance.  This  would,  of  course, 
remove  any  doubt  that  may  exist  on  the  subject,  but  after  further 
considering  the  question  involved  I  am  still  of  the  opinion  that 
even  without  this  authority  incorporated  in  the  draft  the  drawee 
might  accept  a  draft  as  above  outlined  without  destroying  the 
negotiability  of  the  instrument.    December  23,  1918. 

178.    Section  13 — Acceptances  in  Excess  of  10  Per  Cent. 

A  bank  having  a  capital  and  surplus  of  $2,000,000  desires  to 
accept  drafts  drawn  by  third  parties  aggregating  more  than 
$200,000  under  the  guarantee  of  one  of  its  customers. 

Would  the  acceptance  of  such  drafts  constitute  a  violation  of 
that  provision  of  section  13  of  the  Federal  Reserve  Act  which 
provides  that — 

"No  member  bank  shall  accept,  whether  in  a  foreign  or  domes- 
tic transaction,  for  any  one  person,  company,  firm,  or  corporation 
to  an  amount  equal  at  any  time  in  the  aggi-egate  to  more  than 
ten  per  centum  of  its  paid-up  and  unimpaired  capital  stock  and 
surplus,  unless  the  bank  is  secured  either  by  attached  documents 
or  by  some  other  actual  security  growing  out  of  the  same  trans- 
action as  the  acceptance." 

This  section  prohibits  a  member  bank  from  accepting  for  any 
one  person,  drafts  aggregating  more  than  10  per  cent  of  the 
capital  and  surplus.  The  person  who  enters  into  an  agreement 
with  the  bank  to  protect  it  against  loss  and  to  whom  the  bank 
lends  its  credit  in  the  form  of  an  acceptance,  is  obviously  the 
persons  refei-red  to  in  the  statute. 

Accordingly  in  the  case  presented,  unless  the  drafts  are  secured 
as  provided  by  the  statute,  the  acceptance  of  an  amount  in  excess 
of  10  per  cent  of  the  capital  and  surplus  of  the  bank,  would 
constitute  a  violation  of  this  provision  whether  or  not  the  cus- 


242  ACCEPTANCES 

tomer  of  the  bank  guaranteeing  the  acceptance  is  the  drawer  of 
the  draft,  or  some  other  person. 
January  7,  1919. 

179.  Acceptances  in  Excess  of  10  Per  Cent. 

A  member  bank  may  accept  either  in  a  domestic  or  foreign 
transaction  for  one  person  in  an  amount  in  excess  of  10  per 
cent,  provided  the  acceptance  remains  secured  throughout  the  life 
of  the  draft.  It  can  not  accept  in  domestic  transactions  without 
being  secured  at  the  time  of  acceptance,  but  may  release  the 
security  after  acceptance  upon  the  execution  of  a  trust  receipt 
or  an  agreement  by  the  customer  that  so  much  of  the  proceeds 
of  the  sale  of  the  goods  covered  by  the  security  as  may  be  neces- 
sary to  pay  the  draft  will  be  deposited  with  the  accepting  bank 
when  available  and  will  not  be  used  for  other  purposes. 

180.  Domestic   Acceptances — Security   and   Limitations. 

Although  section  13  of  the  Federal  Reserve  Act  authorizes 
member  banks  to  accept  drafts  drawn  in  domestic  transactions 
only  when  secured  at  the  time  of  acceptance  by  attached  shipping 
documents  or  warehouse  receipts  or  other  such  documents,  never- 
theless the  security  may  properly  be  released  after  acceptance; 
provided,  however,  that  in  any  case  where  the  total  amount  ac- 
cepted for  any  one  customer  exceeds  10  per  cent  of  the  capital 
and  surplus  of  the  accepting  bank  the  security  can  not  be  released 
unless  some  other  actual  security  growing  out  of  the  same  trans- 
action is  substituted  therefor.  A  trust  receipt  which  permits  the 
customer  for  whom  the  draft  is  accepted  to  obtain  control  of  the 
goods  is  not  actual  security  for  the  purposes  of  this  section  of 
the  law. 

Although  the  Federal  Reserve  Banks  legally  may  rediscount 
any  draft  which  section  13  authorizes  a  member  bank  to  accept, 
nevertheless  such  reserve  banks  are  not  required  by  law  to  re- 
discount every  such  acceptance  tendered  to  them  for  that  purpose, 
whether  or  not  it  is  secured  at  the  time  it  is  presented  for  redis- 
count. 

181.  Bankers'  Acceptances  Against  Open  Accounts  of  Foreign 

Purchasers. 

National  banks  can  not  accept  drafts  for  the  purpose  of 
enabling  domestic  concerns  to  extend  credits  on  open  account  to 
foreign  purchasers. 

"We  should  like  to  have  your  opinion  and  advice  as  to  a  cer- 


FEDERAL  RESERVE  BOARD  OPINIONS      243 

tain  method  of  financing  export  business,  which  has  been  pro- 
posed to  us  by  one  of  our  good  customers,  who  are  of  unquestioned 
standing. 

"The  company  in  question  finds  that  competition,  particularly 
with  European  sellers,  is  compelling  them  to  refrain  from  draw- 
ing drafts,  either  sight  or  time,  against  shipments  to  certain  big 
buyers  abroad.  These  buyers  insist  on  having  goods  sent  to  them 
on  open  account,  and  as  the  terms  are  frequently  as  long  as  90 
days,  or  even  4  months,  it  means  that  for  a  South  American  ship- 
ment a  delay  of  6  or  7  months  can  easily  elapse  from  time  of 
shipment  from  New  York  to  receipt  of  proceeds  in  New  York, 
even  when  the  bill  is  paid  without  extension  of  original  terms. 
To  help  him  finance  such  a  class  of  business,  he  proposes  that  at 
regular  intervals  (to  illustrate,  once  a  week)  he  will  exhibit 
duplicate  invoices  and  duplicate  documents,  showing  shipments 
actually  made  during  the  past  week,  and  ask  us  to  accept  his 
time  draft  on  us,  for  90  days,  with  privilege  of  one  or  two  re- 
newals, if  necessary,  to  aid  him  in  canying  the  load  on  these 
exports  until  returns  are  received." 

The  question  to  be  determined  is  whether  drafts  drawn  under 
the  foregoing  circumstances  may  be  treated  as  growing  out  of  a 
transaction  involving  the  importation  or  exportation  of  goods? 

Although  it  is  clear  that  there  has  been  an  exportation  of  goods, 
it  does  not  appear  that  the  drafts  in  question  can  be  said  to  have 
grown  out  of  the  transaction  which  involved  the  exportation, 
within  the  meaning  of  the  act. 

As  previously  pointed  out  the  language  used  in  the  act  is 
broad  enough  to  vest  in  the  Board  a  wide  discretion  to  determine 
how  remotely  or  how  directly  the  drafts  drawn  must  be  con- 
nected with  the  transaction  involving  the  exportation.  Con- 
sidering the  general  purposes  of  the  act,  however,  it  is  clearly 
contemplated  that  these  credits  were  to  be  opened  for  the  purpose 
of  facilitating  international  commerce;  that  is  to  say,  to  enable 
the  parties  to  the  transaction  actually  to  export  and  sell  the  goods. 
It  was  hardly  the  intention  of  Congress  to  authorize  member 
banks  to  exercise  this  power  for  the  purpose  of  enabling  domestic 
concerns  to  extend  credits  on  open  account  to  foreign  purchasers. 
In  the  opinion  of  this  office  the  approval  of  this  credit  would 
require  a  forced  construction  of  the  provisions  of  section  13  of 
the  Federal  Reserve  Act.    January  28,  1919. 


244  ACCEPTANCES 

182.  Domestic  Acceptances — Security  and  Limitations. 

It  appears  that  some  confusion  of  thought  exists  in  the  minds 
of  certain  officers  of  Federal  Reserve  Banks  and  member  banks 
as  to  the  Boai'd's  interpretation  of  those  provisions  of  section  13 
of  the  Federal  Reserve  Act  which  relate  (1)  to  the  power  of 
member  banks  to  accept  drafts  drawn  in  domestic  transactions; 
(2)  to  the  eligibility  for  rediscount  by  Federal  Reserve  Banks  of 
member  bank  acceptances. 

It  is  understood  that  the  provisions  in  question  have  been  in- 
terpreted by  the  Board  in  various  rulings,  as  follows: 

POWER  OF  MEMBER  BANKS  TO  ACCEPT  DRAFTS   DRAWN   IN   DOMESTIC 
TRANSACTIONS 

Subject  to  the  limitations  prescribed  by  the  Act,  member  banks 
are  authorized — 

(a)  To  accept  drafts  or  bills  of  exchange  which  grow  out  of 
transactions  involving  the  domestic  shipment  of  goods,  provided 
shipping  documents  conveying  or  securing  title  are  attached  at  the 
time  of  acceptance. 

(b)  To  accept  drafts  or  bills  of  exchange  which  are  secured 
at  the  time  of  acceptance  by  warehouse  receipts  or  other  such 
documents  conveying  or  securing  title  covering  readily  marketable 
staples. 

All  drafts  accepted  in  domestic  transactions  must  therefore 
be  secured  at  the  time  of  acceptance  either  by  shipping  docu- 
ments or  warehouse  receipts  or  other  such  documents,  as  specified 
in  the  law.  If  the  aggi'egate  amount  of  drafts  accepted  for  one 
person,  finn,  or  corporation  exceeds  a  sum  equal  to  10  per  cent  of 
the  capital  and  surplus  of  the  accepting  bank,  such  drafts, 
whether  in  a  foreign  or  domestic  transaction,  must  remain  se- 
cured throughout  the  life  of  the  draft  since  the  Act  provides  that : 

"No  member  bank  shall  accept,  whether  in  a  foreign  or  domes- 
tie  transaction,  for  any  one  person,  ...  to  an  amount  equal  at 
any  time  in  the  aggregate  to  more  than  10  per  centum  of  its  paid- 
up  and  ununpaired  capital  stock  and  surplus,  unless  the  bank  is 
secured  either  by  attached  documents  or  by  some  other  actual 
security  growing  out  of  the  same  transaction  as  the  acceptance." 

183.  Security  Covering  Acceptances  in  Excess  of  10  Per  Cent 

Limitation  of  Section  13. 
Under  the  provisions  of  section  13  a  member  bank  may  accept 
for  any  one  customer  in  excess  of  10  per  cent  of  its  capital  and 


FEDERAL  RESERVE  BOARD  OPINIONS      245 

surplus,  provided  it  is  secured  by  attached  documents  or  by  some 
other  actual  security  gri'owing  out  of  the  same  transaction  as  to 
all  acceptances  in  excess  of  the  10  per  cent  limitation. 

[See  opinion  of  General  Counsel  in  Law  Department,  p.  364.] 

184.  Stamp  Tax  on  Drafts  Drawn  Against  Shipments  from  the 

United  States. 
Because  of  the  constitutional  restriction  against  taxes  on  ex- 
ports, drafts  which  are  drawn  against  shipments  from  the  ter- 
ritorial United  States,  including  the  District  of  Columbia,  Hawaii, 
and  Alaska,  to  foreign  countries  are  not  subject  to  stamp  tax 
under  provisions  of  the  1918  Revenue  Act,  even  though  accepted 
or  delivered  or  both  accepted  and  delivered  within  the  United 
States.  Shipments  from  the  territorial  United  States  to  the  Canal 
Zone,  Virgin  Islands,  Porto  Rico,  and  the  Philippines  are  not 
considered  shipments  to  foreign  countries,  but  drafts  against 
shipments  to  Porto  Rico,  the  Virgin  Islands,  and  the  Philippines 
are  exempt  from  stamp  tax  by  express  legislation  even  though 
such  shipments  are  not  considered  shipments  to  foreign  countries, 

185.  Substitution  of  Security  for  Acceptances  in  Excess  of  10 

Per  Cent  Limit. 
Section  13  of  the  Federal  Reserve  Act  pro\'ides  that  no  mem- 
ber bank  shall  accept,  whether  in  a  foreign  or  domestic  trans- 
action, for  any  one  person,  company,  firm,  or  corporation  to  an 
amount  in  excess  of  10  per  cent  of  its  capital  and  surplus,  unless 
the  bank  is  secured  either  by  attached  documents  or  by  some  other 
actual  security  flowing  out  of  the  same  transaction  as  the  ac- 
ceptances. The  question  often  arises  as  to  whether  or  not  docu- 
ments issued  under  the  following  circumstances  constitute  some 
other  actual  security  within  the  meaning  of  this  section. 

A  corporation  ships  goods  consigned  to  its  own  agent;  it 
draws  a  time  draft  on  its  own  bank  with  the  bills  of  lading  at- 
tached; the  bank  accepts,  the  acceptance  being  in  excess  of  10 
per  cent  of  its  capital  and  surplus.  The  question  is  whether  the 
bills  of  lading  may  be  released  by  the  bank  to  the  agent  who  is 
the  consignee,  provided  that  the  agent  substitutes  therefor  other 
drafts  secured  by  bills  of  lading  covering  the  same  goods  which 
were  being  shipped  by  the  agent  to  various  dealers.  The  Board 
is  of  the  opinion  that  the  new  drafts,  secured  by  bills  of  lading 
covering  the  same  goods,  do  constitute  some  other  actual  security 
within  the  meaning  of  section  13,  and  that  the  accepting  bank  may 
properly  release  the  origmal  bills  in  favor  of  these  other  drafts, 


246  ACCEPTANCES 

even  though  the  aggregate  of  acceptances  for  the  same  customer 
exceeds  10  per  cent  of  its  capital  and  surplus. 

Generally  speaking,  the  bill  of  lading  drafts  substituted  for  the 
original  bills  of  lading  are  drafts  drawn  on  certain  dealers  and 
presented  to  the  accepting  bank  for  collection,  the  proceeds  to  be 
applied  to  the  payment  of  the  original  acceptance.  The  Board 
believes  that  this  security  is  not  only  an  actual  security  within 
the  meaning  of  the  act,  but  also  that  it  grows  out  of  the  same 
transaction  as  the  original  acceptance  and  that,  therefore,  the 
substitution  may  properly  be  made. 

186.    Trade  Acceptances  Covering  Building  Operations. 

The  Federal  Reserve  Board  has  received  many  inquiries  with 
reference  to  the  right  of  the  various  parties  concerned  in  building 
contracts  to  draw  trade  acceptances  against  each  other  for  the 
purpose  of  financing  the  different  steps  in  the  process  of  building. 

The  Board  finds  it  difficult,  if  not  impossible,  to  answer  any 
general  hypothetical  question  with  reference  to  this  subject  be- 
cause of  the  fact  that  the  elements  necessary  to  determine  the 
eligibility  of  trade  acceptances  depend  largely  not  only  upon  the 
general  nature  of  the  business  which  they  finance,  but  upon  the 
technical  terms  of  the  contract  covering  the  particular  transaction 
out  of  which  they  grow.  There  does  not  seem  to  be  any  doubt 
that  a  draft  drawn  by  a  manufacturer  or  material  man  upon  a 
builder  to  cover  the  cost  of  materials  sold  to  the  builder  is  eligible 
for  rediscount  as  a  trade  acceptance  when  accepted  by  the  builder, 
for  that  comes  clearly  within  the  terms  of  the  Board's  definition 
of  such  an  instrument.  It  is  equally  clear,  however,  that  if  the 
nature  of  the  contract  under  which  the  building  operations  are 
being  conducted  is  such  that  the  contractor,  for  instance,  does 
not  get  title  either  to  the  materials  furnished  or  to  the  building 
as  it  is  being  erected,  he  can  not  properly  make  a  trade  acceptance 
of  a  draft  drawn  upon  him  by  the  subcontractor  or  builder,  it 
being  apparent  that  he  has  not  been  the  purchaser  of  goods  sold 
within  the  meaning  of  the  Board's  regulations. 

Building  contracts  vary  so  greatly  in  different  localities  and 
are  always  so  intricate  in  their  nature  that  it  is  impossible  to 
promulgate  any  general  ruling  as  to  the  possibility  of  the  use  of 
the  trade  acceptance  to  finance  structural  work  and  other  building 
operations  in  general.  Each  case  would  have  to  be  determined 
upon  the  facts  as  ascertained  in  the  light  of  the  contract  under 
which  the  operations  are  being  conducted. 


FEDERAL  RESERVE  BOARD  OPINIONS      247 

If  the  drawer  of  the  draft  has  sold  "goods"  to  the  drawee,  the 
drawee  may  properly  accept,  and  the  draft  thus  accepted  would 
constitute  a  trade  acceptance  if  otherwise  in  conformity  with 
the  Board's  regulations,  but  it  should  be  noted  that  labor  in  itself 
is  not  considered  "goods"  within  the  meaning  of  these  regulations. 
The  Board  has  ruled,  however,  that  a  draft  drawn  to  cover  the 
purchase  price  of  goods  sold,  plus  the  cost  of  installing  those 
goods,  may  be  eligible  for  acceptance  as  a  trade  acceptance.  ( See 
Federal  Reserve  Bulletin  of  April,  1918,  p.  310.)  At  this  time, 
however,  the  Board  is  not  inclined  to  extend  the  scope  of  its 
definition  of  the  word  "goods"  to  include  labor  alone. 

It  should  be  understood,  of  course,  that  nothing  in  this  ruling 
should  be  construed  to  imply  that  a  note  or  bill  of  exchange,  the 
proceeds  of  which  have  been  used  or  are  to  be  used  for  the  pay- 
ment of  wages  or  for  services  rendered,  is  not  eligible  for  redis- 
count. It  is  merely  intended  to  indicate  that  in  order  to  constitute 
a  certain  preferred  class  of  eligible  bills  of  exchange  specifically 
designated  as  trade  acceptances,  the  transactions  out  of  which  the 
acceptances  grow  must  be  ones  involving  the  sale  of  "goods" 
within  the  meaning  of  the  Board's  regulations. 

This  ruling  is  issued  with  the  understanding  that  trade  ac- 
ceptances should  not  be  used  so  as  to  extend  the  usual  and 
customary  terms  of  credit. 

187.  Sight  Drafts  Accepted  Payable  at  a  Future  Date. 

A  sight  draft  which  is  accepted  by  the  drawee,  payable  at  a 
future  date,  is  a  qualified  acceptance  which  the  holder  may  re- 
fuse to  take,  but  if  such  an  acceptance  is  taken  by  the  holder  the 
drawer  and  indorsers  are  released  unless  they  have  either  ex- 
pressly or  impliedly  authorized  the  holder  to  take  a  qualified  ac- 
ceptance or  unless  they  subsequently  assent  thereto. 

188.  Definition  of  "Readily  Marketable  Staples." 

Printed  below  is  a  definition  of  the  term  "readily  marketable 
staples"  as  used  in  that  part  of  Section  13  of  the  Federal  Re- 
serve Act  which  authorizes  any  member  bank  to  accept  drafts 
which  are  secured  at  the  time  of  acceptance  by  a  warehouse 
receipt  or  other  such  document  conveying  or  securing  title  cover- 
ing "readily  marketable  staples." 

The  Board  has  issued  this  definition  as  a  guide  to  Federal 
Reserve  Banks  and  member  banks  in  determining  what  staples 
may  properly  be  considered  readily  marketable  within  the  mean- 


248  ACCEPTANCES 

ing  of  that  section  and  suggests  that  although  the  law  does  not 
expressly  restrict  eligible  staples  to  those  which  are  nonperishable 
nevertheless  banks  as  a  matter  of  prudence  and  protection  to 
themselves  should  not  consider  as  eligible  any  staple  which  is  in 
its  nature  so  perishable  as  not  to  be  reasonably  sure  of  main- 
taining its  value  as  security  at  least  for  the  life  of  the  draft 
which  is  drawn  against  it. 

DEFINITION 

A  readily  marketable  staple  may  be  defined  as  an  article  of 
commerce,  agriculture,  or  industry  of  such  uses  as  to  make  it  the 
subject  of  constant  dealings  in  ready  markets  with  such  frequent 
quotations  of  prices  as  to  make  (a)  the  price  easily  and  definitely 
ascertainable  and  (b)  the  staple  itself  easy  to  realize  upon  by 
sale  at  any  time. 

189.    Renewal  Acceptances. 

The  Federal  Reserve  Board  fully  realizes  that  conditions 
abroad  are  still  far  from  normal  and  that  allowance  for  this  fact 
must  be  made  in  estimating  the  duration  of  any  transaction  in- 
volving the  exportation  of  goods  on  account  of  which  an  original 
draft  is  drawn,  and  consideration  will  be  given  to  these  abnormal 
conditions  by  the  Board  in  ruling  upon  the  eligibility  of  renewal 
drafts. 

It  is  clear,  however,  that  no  renewal  draft  can  be  held  to  be 
eligible  if  at  the  time  of  its  acceptance  the  period  required  for 
the  conclusion  of  the  transaction  out  of  which  the  original  draft 
was  drawn  shall  have  elapsed.  In  cases  where  it  is  practicable 
at  the  time  the  original  draft  is  drawn  to  foretell  with  sub- 
stantial certainty  the  conditions  which  will  exist  at  the  time  the 
renewal  draft  is  to  be  drawn,  the  Board  may  be  able  to  rule  in 
advance  as  to  the  eligibility  of  such  renewal  drafts;  but  in  cases 
where  it  is  not  possible,  the  question  of  the  eligibility  of  renewal 
drafts  must  necessarily  depend  upon  the  stage  of  the  transaction 
that  may  have  been  reached  when  such  renewal  drafts  are  drawn. 

In  cases  where  transactions  have  been  fully  concluded  but 
where  the  vendor  in  this  country  deems  it  inadvisable,  or  his 
customer  abroad  finds  it  inexpedient  to  remit  the  proceeds  of  the 
sale,  owing  to  adverse  exchange  rate  or  to  other  circumstances, 
it  would  follow  that  to  permit  the  renewal  of  bills  based  on  such 
a  state  of  facts  would  be  to  render  eligible  bills  which  in  their 
nature  are  merely  finance  bills. 


FEDERAL  RESERVE  BOARD  OPINIONS      249 

After  four  years  of  war  many  industries  abroad  require  not 
only  current  commercial  accommodation  but  also  what  is  in  effect 
replenishment  of  pemianent  working  capital,  and  efforts  to  re- 
plenish permanent  working  capital  by  means  of  bills  which  are 
in  form  self-liquidating  but  which  actually  represent  in  substance 
a  permanent  investment,  can  not  be  encouraged  by  the  Federal 
Reserve  Board.  Any  parties  interested  in  transactions  of  this 
kind  should  finance  themselves  through  the  investment  market. 

Subject  to  the  limitations  above  outlined,  the  Board  is  pre- 
pared to  take  full  account  of  the  extraordinary  conditions  now 
prevailing  and  to  make  ruling  accordingly. 

190.  Acceptance  of  Drafts.  Secured  by  Warehouse  Receipts. 

The  Federal  Reserve  Board  is  of  the  opinion  that  no  draft 
which  is  secured  by  a  warehouse  receipt  should  properly  be  con- 
sidered eligible  for  acceptance  under  the  terms  of  section  13  of 
the  Federal  Reserve  Act  unless  the  goods  covered  by  the  ware- 
house receipt  are  being  held  in  storage  pending  a  reasonable  im- 
mediate sale,  shipment,  or  distribution  into  the  process  of  manu- 
facture. Any  draft  therefore  which  is  drawn  to  carry  goods  for 
speculative  purposes  or  for  any  indefinite  period  of  time  without 
the  purpose  to  sell,  ship,  or  manufacture  within  a  reasonable  time, 
should  not  be  considered  eligible  for  acceptance  under  the  pro- 
visions of  section  13.  Such  a  draft  would  be  merely  a  cloak  to 
evade  the  restrictions  of  section  5200  of  the  Revised  Statutes 
and  is  not  one  of  the  kinds  which  Congi'ess  intended  to  make 
eligible  for  acceptance. 

191.  Conditional  Sales  as  the  Basis  of  Trade  Acceptances. 

An  acceptance  which  pro\ddes  that  the  drawer  is  to  retain 
title  to  the  goods  until  payment  of  the  acceptance  is  not  consistent 
with  the  requirement  of  a  legitimate  trade  acceptance  that  the 
title  shall  have  passed  to  the  drawee  at  the  time  of  acceptance. 
The  actual  sale  of  goods  and  not  what  is  generally  termed  a  con- 
ditional sale  of  goods  must  be  the  basis  of  the  acceptance. 

192.  Cotton  Factors'  Paper. 

The  Federal  Reserve  Board  has  carefully  considered  the  ques- 
tion whether  cotton  factors'  paper  may  properly  be  considered 
eligible  for  rediscount  as  commercial  paper  within  the  meaning 
of  section  13  of  the  Federal  Reserve  Act.  In  view  of  the  fact 
that  it  is  apparent  from  all  the  evidence  on  hand  that  the  eir- 


250  ACCEPTANCES 

cumstances  and  conditions  under  which  so-called  cotton  factors* 
paper  is  issued  vary  so  much  in  different  cases,  it  is  impossible 
to  give  any  categorical  answer  to  the  question  presented,  or  to 
make  any  general  ruling  that  cotton  factors'  paper,  as  such,  is 
eligible  or  ineligible  for  rediscount. 

The  Board  is  clearly  of  the  opinion  on  the  one  hand,  that 
paper,  the  proceeds  of  which  are  used  to  lend  to  some  third  party, 
is  finance  paper  rather  than  commercial  paper  and  is,  in  conse- 
quence, ineligible  for  rediscount  even  though  that  third  pai'ty  may 
use  the  proceeds  for  a  commercial  purpose.  On  the  other  hand, 
the  Board  believes  that  any  paper,  the  proceeds  of  which  are 
used  to  purchase  goods  to  sell  to  some  third  party,  is  eligible  for 
rediscount  as  commercial  paper  within  the  meaning  of  section  13. 

Whether  or  not  a  given  transaction  falls  within  one  class  or 
the  other  is  solely  a  question  of  fact  for  the  determination  of  the 
directors  of  the  Federal  Reserve  Bank  to  which  the  paper  is 
presented  for  rediscount.  The  mere  fact  that  a  borrower  on  a 
given  note  is  a  cotton  factor  does  not  of  itself  render  that  note 
ineligible  since  its  eligibility  is  a  matter  to  be  determined  by  the 
use  to  which  the  proceeds  of  that  particular  note  are  put.  If  a 
cotton  factor  borrows  on  his  own  note  to  increase  his  capital  for 
the  purpose  of  lending  to  his  customers,  the  note  would  come 
within  the  first  class  and  would  be  ineligible,  but  if  it  can  be 
determined  that  the  proceeds  of  the  note  instead  of  being  loaned 
to  a  customer  by  the  factor  are  used  by  the  factor  to  purchase 
goods  wh^eh  are  shipped  to  the  customer  and  which  are  charged 
by  the  factor  against  the  customer's  account,  then  the  note  at- 
tains a  commercial  status  because  of  the  commercial  purpose  to 
which  its  proceeds  are  applied  by  the  factor. 

In  order  to  ascertain  the  necessary  facts  it  may  be  proper  for 
a  Federal  Reserve  Bank  to  require  statements  or  affidavits  from 
the  maker  of  the  note  as  to  the  exact  nature  of  the  transaction 
out  of  which  it  arises.  With  these  principles  as  a  guide,  the 
Federal  Reserve  Bank  must  determine  the  eligibility  of  any 
particular  paper  in  the  light  of  the  circumstances  in  which  it  was 
issued,  and  its  proceeds  disposed  of. 

193.    What  a  Federal  Reserve  Bank  May  Discount  for  Its 
Member  Banks. 

The  limitations  imposed  upon  the  amounts  of  rediscounts  which 
a  Federal  Reserve  Bank  may  make  for  a  member  bank,  whether 
State  or  national,  are  determined  by  the  provisions  of  the  Federal 


FEDERAL  RESERVE  BOARD  OPINIONS      251 

Reserve  Act  and  are  not  in  any  way  affected  by  the  amendment 
to  section  5200. 

Under  the  provisions  of  section  13  of  the  Federal  Reserve  Act 
any  Federal  Reserve  Bank  may  rediscount  for  any  member  bank, 
whether  State  or  national,  the  obligations  of  any  one  borrower 
to  the  extent  of  10  per  cent  of  the  member  bank's  capital  and 
surplus,  but  it  is  expressly  provided  that  "bills  of  exchange  drawn 
against  actually  existing  values"  shall  not  be  included  in  determin- 
ing that  10  per  cent  limit. 

In  the  opinion  of  the  Federal  Reserve  Board  this  phrase  "bills 
of  exchange  drawn  against  actually  existing  values"  includes, 
among  other  kinds  of  paper,  "drafts  or  bills  of  exchange  secured 
by  shipping  documents  conveying  or  securing  title  to  goods 
shipped"  and  "bankers'  acceptances  of  the  kinds  described  in 
section  13  of  the  Federal  Reserve  Act,"  even  though  section  13 
(unlike  the  amendment  to  section  5200)  does  not  expressly  state 
that  those  two  classes  of  paper  are  bills  of  exchange  drawn 
against  actually  existing  values.  In  the  opinion  of  the  Board, 
however,  accepted  demand  bills  on  which  the  drawer  is  released 
from  liability  are  not  "bills  of  exchange"  within  the  meaning  of 
section  13  and  must,  therefore,  be  included  in  determining  the 
limits  on  the  amount  of  paper  of  any  one  borrower  which  a  Fed- 
eral Reserve  Bank  may  rediscount  for  any  member  bank. 

Under  the  terms  of  section  11  (m),  as  amended  by  the  act  of 
March  3,  1919,  any  Federal  Reserve  Bank  may,  until  December 
31,  1920,  rediscount  for  any  member  bank,  whether  state  or 
national,  the  obligations  of  any  one  bori'ower  to  the  extent  of 
20  per  cent  of  the  member  bank's  capital  and  surplus,  provided, 
however,  that  the  excess  over  and  above  10  per  cent  must  be 
secured  by  bonds  or  notes  of  the  United  States  issued  since  April 
24,  1917,  or  by  certificates  of  indebtedness  of  the  United  States. 

194.    Limitations  on  the  Power  to  Rediscount  for  Member  State 
Banks. 

The  above  discussion  relates  to  the  general  powers  of  a  Federal 
Reserve  Bank  to  make  rediscounts  for  any  member  bank,  whether 
State  or  tiational.  It  must  be  observed,  however,  that  under  the 
terms  of  section  9  of  the  Federal  Reserve  Act  no  Federal  Reserve 
Bank  can  rediscount  for  a  member  State  bank  any  of  the  paper 
of  any  one  borrower  who  is  liable  to  such  member  State  bank  in 
excess  of  10  per  cent  of  the  capital  and  surplus  of  that  State 
bank,  but  it  is  provided  that  the  discount  of  bills  of  exchange 


252  ACCEPTANCES 

drawn  against  actually  existing  values  and  the  discount  of  com- 
mercial or  business  paper  actually  owned  by  the  person  negotiat- 
ing the  same  shall  not  be  included  in  determining  the  amount 
to  which  a  borrower  is  liable  to  such  member  State  bank. 

The  provisions  of  section  9  are  in  no  way  affected  by  the 
amendment  to  section  5200  of  the  Revised  Statutes,  and  the  same 
test  as  to  the  eligibility  of  any  part  of  the  line  of  paper  of  any 
one  borrower  which  is  held  by  a  member  State  bank  is  ap- 
plicable now  as  before  that  amendment  to  section  5200. 

Under  the  provisions  of  Section  11  (m),  as  amended  by  the 
act  of  March  3,  1919,  the  Board  has  ruled  that  a  Federal  Reserve 
Bank  may,  until  December  31,  1920,  rediscount  for  a  member 
State  bank  paper  secured  by  not  less  than  a  like  face  amount  of 
bonds  or  notes  of  the  United  States  issued  since  April  24,  1917, 
or  certificates  of  indebtedness  of  the  United  States,  without  regard 
to  the  amount  the  borrowing  bank  max,  already  have  loaned  to 
its  customer  under  his  regular  line  of  credit,  provided,  however, 
that  the  aggregate  of  all  rediscounts  of  the  paper  of  any  one 
borrower  must  in  no  case  exceed  20  per  cent  of  the  capital  and 
surplus  of  the  member  State  bank. 

In  other  words,  if  the  regular  line  of  credit  of  the  borrower 
from  a  member  State  bank  is  not  more  than  the  10  per  cent  limit 
fixed  by  section  9  of  the  Federal  Reserve  Act,  Federal  Reserve 
Banks  may  rediscount  for  State  member  banks  to  the  same  extent 
that  they  may  for  member  national  banks.  If,  however,  the 
regular  line  of  credit  of  the  borrower  from  the  member  State 
bank  is  more  than  that  10  per  cent  limit,  then  the  Federal  Reserve 
Bank  can  not  rediscount  any  of  that  regular  line  of  credit,  but 
may  rediscount  that  paper  which  is  secured  by  Government 
obligations  of  the  kinds  specified  up  to  the  limits  described  above. 
(See  ruling  of  the  Federal  Reserve  Board  printed  on  pages  361 
and  362  of  the  April,  1919,  Federal  Reserve  Bulletin.) 

195.    Exchange  Charges  on  Member  Bank's  Own  Acceptance. 

The  question  has  been  presented  to  the  Federal  Reserve  Board 
whether  a  member  bank  may  lawfully  make  an  exchange  charge 
on  one  of  its  own  acceptances  presented  to  it  for  collection  by 
the  Federal  Reserve  Bank  of  its  district. 

The  Federal  Reserve  Board  is  of  the  opinion  that  a  banker's 
acceptance  is  a  draft  within  the  meaning  of  that  part  of  section 
13  which  reads  as  follows: 


FEDERAL  RESERVE  BOARD  OPINIONS      253 

That  nothing  in  this  or  any  other  section  of  this  act  shall  be 
construed  as  prohibiting  a  member  or  nonmember  bank  from 
making  reasonable  charges  to  be  determined  and  regulated  by 
the  Federal  Reserve  Board,  but  in  no  case  to  exceed  10  cents  per 
$100  or  fraction  thereof,  based  on  the  total  of  checks  and  drafts 
presented  at  any  one  time  for  collection  or  payment  of  cheeks  and 
drafts  and  remission  therefor  by  exchange  or  othei-wise;  but  no 
such  charges  shall  be  made  against  the  Federal  Reserve  Banks. 

It  is  clear,  therefore,  that  a  member  bank  has  not  authority  in 
law  to  deduct  exchange  in  accounting  to  the  Federal  Reserve 
Bank  for  one  of  its  own  acceptances  forwarded  to  it  for  col- 
lection by  the  Federal  Reserve  Bank. 

196.  Acceptance  of  Drafts  Drawn  by  an  American  Manufac- 
turer for  the  Purpose  of  Financing  the  Purchase  of 
Goods  from  a  Foreign  Seller. 

The  Board  has  been  asked  for  a  ruling  as  to  the  right  of  a 
member  bank  to  accept  drafts  drawn  under  the  following  circum- 
stances : 

An  American  importer  of  merchandise  receives  advices  from 
the  foreign  seller  that  he  is  making  a  shipment  of  the  goods 
bought.  This  advice,  which  is  accompanied  by  a  bill  for  the 
goods,  usually  comes  through  before  the  arrival  of  the  bill  of 
lading  or  the  goods  themselves.  In  order  to  procure  funds  to 
pay  the  bill  which  accompanied  the  advice,  the  importer  draws  a 
90-day  draft  upon  his  bank,  although  at  that  time  the  goods  sold 
may  be  unshipped  or  lying  in  a  foi-eign  port  awaiting  shipment, 
or  afloat,  or  in  this  country. 

The  question  is  whether  such  a  draft  is  eligible  for  acceptance 
under  that  part  of  section  13  of  the  Federal  Reserve  Act,  which 
permits  any  member  bank  to  accept  drafts  drawn  upon  it  "which 
grow  out  of  transactions  involving  the  importation  or  exportation 
of  goods." 

The  Federal  Reserve  Board  has  frequently  had  occasion  to 
rule  that  a  draft  drawn  by  an  importer  of  goods  for  the  purpose 
of  procuring  funds  with  which  to  pay  the  foreign  seller  of  those 
goods  is  eligible  for  acceptance  by  a  member  bank  whether  or  not 
the  bill  of  lading  covering  the  goods  is  attached  to  the  draft  and 
whether  or  not  the  goods  have  actually  been  shipped  by  the 
seller  at  the  time  the  draft  is  drawn.  In  such  a  case,  that  is, 
where  there  has  been  an  actual  sale  of  goods  for  export,  the  draft 


254  ACCEPTANCES 

which  is  to  procure  funds  with  which  to  pay  for  those  goods  is 
one  which  clearly  grows  out  of  a  transaction  involving  the  im- 
portation of  goods  within  the  meaning  of  section  13,  and  as  such 
is  eligible  for  acceptance  by  a  member  bank,  provided,  of  course, 
that  it  complies  in  other  respects  with  the  terms  of  the  law  and 
the  regulations  of  the  Federal  Reserve  Board. 

This  ruling  is  not  intended  in  any  way  to  apply  to  the  case  of 
a  draft  drawn  by  an  American  manufacturer  for  the  purpose  of 
financing  the  purchase  of  goods  not  from  a  foreign  seller  but 
from  an  American  importer. 

197.  Eligibility  of  Drafts  Drawn  by  a  Cotton  Factor. 

The  Federal  Reserve  Board  has  considered  the  question  whether 
or  not  a  draft  drawn  by  a  cotton  factor  is  eligible  for  acceptance 
by  a  member  bank  if  secured  at  the  time  of  acceptance  by  a 
warehouse  receipt  covering  cotton  consigned  to  the  cotton  factor 
for  the  purpose  of  sale  and,  if  eligible  for  acceptance  by  a  mem- 
ber bank,  whether  it  is  eligible  for  rediscount  by  a  Federal  Re- 
serve Bank  after  acceptance. 

The  Board  is  of  the  opinion  that  any  draft  drawn  under  the 
circumstances  described,  where  it  appears  that  the  proceeds  are 
to  be  used  by  the  factor  not  for  a  commercial  purpose  but  rather 
for  the  purpose  of  lending  to  his  customers,  is  not  eligible  for 
acceptance  under  the  temis  of  section  13  of  the  Federal  Reserve 
Act  and  in  consequence  is  not  eligible  for  rediscount  by  a  Federal 
Reserve  Bank  as  an  acceptance. 

198.  Acceptance   of  Drafts   Secured  by  Warehouse  Receipts 

Covering  Automobiles  or  Automobile  Tires. 

Any  member  bank  may  accept  drafts  drawn  upon  it  which 
are  secured  at  the  time  of  acceptance  by  warehouse  receipts  con- 
veying or  securing  title  covering  readily  marketable  staples. 

On  page  652  of  the  July,  1919,  Federal  Reserve  Bulletin,  the 
Federal  Reserve  Board  has  defined  a  readily  marketable  staple 
as  follows: 

A  readily  marketable  staple  may  be  defined  as  an  article  of 
commerce,  agriculture,  or  industry  of  such  uses  as  to  make  it  the 
subject  of  constant  dealings  in  ready  markets  with  such  frequent 
quotations  of  prices  as  to  make  (a)  the  price  easily  and  definitely 
ascertainable  and  (b)  the  staple  itself  easy  to  realize  upon  by 
sale  at  any  time. 


FEDERAL  RESERVE  BOARD  OPINIONS      255 

The  Board  has  heretofore  ruled  that  an  automobile  is  not  a 
readily  marketable  staple  within  the  meaning  of  this  definition 
and  that  a  draft  secured  by  a  warehouse  receipt  covering  an 
automobile  is  on  that  account  not  eligible  for  acceptance  by  a 
member  bank.  The  Board  is  also  of  the  opinion  that  automobile 
tires  can  not  properly  be  considered  readily  marketable  staples 
and  that  a  warehouse  receipt  covering  automobile  tires,  like  a 
warehouse  receipt  covering  an  automobile,  can  not  form  the  basis 
of  an  acceptance  under  the  terms  of  section  13  of  the  Federal 
Reserve  Act. 

This  ruling,  however,  should  not  be  construed  to  deny  the  right 
of  a  member  bank  to  accept  a  draft  to  which  is  attached  at  the 
time  of  acceptance  a  bill  of  lading  covering  an  automobile  or 
automobile  tires  in  the  process  of  shipment,  provided  that  the 
draft  otherwise  complies  with  the  terms  of  the  law  and  the  regula- 
tions of  the  Federal  Reserve  Board.     December,  1919. 

199.  Bankers'   Acceptances  Secured  by  Documentary  Drafts 

on  Foreign  Buyer. 
Section  13  provides  in  part  that  member  banks  may  accept 
drafts  "which  grow  out  of  transactions  involving  the  importation 
or  exportation  of  goods."  The  scope  of  this  provision  is  by  its 
terms  a  broad  one  and  the  Board  has  heretofox-e  ruled  that  a  draft 
drawn  upon  a  national  bank  which  is  secured  by  a  documentary 
draft  drawn  by  the  same  drawer  upon  a  foreign  buyer  is  eligible 
for  acceptance  by  the  national  bank.  It  has  ruled,  however,  that 
no  bank  which  has  purchased  a  foreign  documentary  draft  may 
refinance  itself  by  drawing  a  draft  on  a  member  bank  secured  by 
the  d(^umentary  draft.  If,  however,  the  seller  or  shipper  of 
goods  draws  a  draft  upon  the  foi'eign  buyer  or  consignee  payable 
abroad  and  secured  by  shipping  documents,  it  is  proper  for  the 
drawer  to  finance  that  shipment  by  a  banker's  acceptance  secured 
by  that  documentary  draft.  In  fact,  it  appears  to  the  Board  that 
that  is  the  proper  way  for  the  transaction  to  be  handled  since 
the  accepting  bank  then  has  cotitrol  of  the  draft  and  documents 
out  of  which  its  own  acceptance  is  ultimately  to  be  paid.  June, 
1920. 

200.  Charges  for  Collection  of  Notes  and  Acceptances. 

The  question  has  been  presented  as  to  whether  a  member  bank 
may  make  a  charge  against  a  Federal  Reserve  Bank  for  the  col- 
lection and  remittance  of  "notes  and  acceptances  payable  at  the 
member  bank." 


256  ACCEPTANCES 

Under  the  terms  of  section  13  of  the  Federal  Reserve  Act  no 
member  bank  may  make  a  charge  against  its  Federal  Reserve 
Bank  for  the  collection  or  payment  of  "cheeks  and  drafts"  and 
remission  therefor  by  exchange  or  otherwise.  In  any  case,  there- 
fore, where  a  Federal  Reserve  Bank  presents  to  a  member  bank 
for  payment  a  check  or  draft  drawn  upon  that  member  bank,  no 
charge  may  be  made  against  the  Federal  Reserve  Bank  for  re- 
mitting to  it  by  exchange  or  in  any  other  manner  of  payment. 

Inasmuch  as  the  acceptance  of  a  member  bank  is  necessarily 
a  "draft"  on  that  bank  no  charge  may  be  made  against  the 
Federal  Reserve  Bank  for  its  payment.  The  Federal  Reserve 
Board,  however,  has  frequently  had  occasion  to  rule  that  the 
provisions  of  section  13,  discussed  above,  do  not  prohibit  a  mem- 
ber bank  from  charging  the  Federal  Reserve  Bank  for  the  service 
of  collecting  maturing  notes  and  bills  of  exchange  drawn  upon 
individuals,  firms,  or  corporations  other  than  banks.  The  fact 
that  such  a  note  or  bill  of  exchange  not  drawn  on  a  bank  may 
be  made  payable  at  that  bank  does  not  bring  it  within  the  restric- 
tions of  section  13  referred  to  above  and  does  not  preclude  the 
member  bank  from  making  a  charge  against  the  Federal  Reserve 
Bank  for  effecting  its  collection  and  remitting  therefor  by  ex- 
change or  otherwise.     July,  1920. 

201.  Commercial  Paper  for  Financing  Development  or  Con- 
struction. 

Inquiries  are  frequently  received  by  the  Federal  Reserve  Board 
as  to  the  eligibility  of*paper  drawn  for  the  purpose  of  developing 
properties  or  of  financing  various  kinds  of  construction. 

The  Board  is-  of  the  opinion  generally  that  the  note  of  the 
owner  of  property  which  is  to  be  developed  or  built  upon,  the 
proceeds  of  which  note  have  been  or  are  to  be  used  by  him  to  pay 
for  the  work  of  developing  or  buildmg,  is  a  note  "the  proceeds 
of  which  have  been  or  are  to  be  used  for  permanent  or  fixed  in- 
vestments" within  the  meaning  of  the  Board's  regulations,  and 
that,  therefore,  such  a  note  is  not  eligible  for  rediscount  by  a 
Federal  Reserve  Bank  under  the  terms  of  section  13. 

If,  however,  the  note  of  an  owner  or  producer  is  given  in  good 
faith  to  a  contractor  in  actual  payment  of  materials  and  services 
furnished  by  him  for  the  owner  or  producer  it  may  be  considered 
to  be  technically  eligible  for  rediscount  as  paper  the  proceeds  of 
which  have  been  or  are  to  be  used  for  a  commercial  or  industrial 
purpose.     There  certainly  is  no  doubt  in  such  a  case  that  the 


FEDERAL  RESERVE  BOARD  OPINIONS      257 

paper  in  the  hands  of  the  contractor  is  commercial  or  business 
paper  actually  owned  by  him  and  as  such  should  be  considered 
eligible  for  rediscount  when  presented  through  a  member  bank, 
provided  that  it  complies  in  other  respects  with  the  provisions  of 
the  law  and  the  Board's  regulations.  If  this  were  not  true  no 
paper  in  the  hands  of  a  material  man  received  by  him  in  payment 
for  materials  furnished  in  the  building  industry  could  be  con- 
sidered eligible  for  rediscount,  a  conclusion  which  is  obviously 
not  consistent  with  the  scope  and  purposes  of  section  13. 

It  must  be  understood,  however,  that  even  though  a  note  may 
be  technically  eligible  for  rediscount  a  Federal  Reserve  Bank  may, 
in  the  exercise  of  its  discretion,  decline  to  effect  its  rediscount  if 
for  any  reason  it  is  deemed  to  be  an  undesirable  investment,  and 
should  do  so  in  any  case  where  the  ultimate  payment  of  the  note 
is  dependent  upon  the  success  of  the  transaction  giving  rise  to 
the  note.  A  Federal  Reserve  Bank  being  familiar  with  local 
conditions  and  the  peculiar  requirements  of  its  own  district  is  in 
a  position  to  determine  in  each  ease  whether  a  particular  note  or 
a  particular  class  of  paper  even  though  technically  eligible  is  a 
reasonable  or  desirable  investment  for  it  to  make.        July,  1920. 

202.    Agencies  of  National  Banks  for  Purpose  of  Accepting 
Drafts. 

The  following  is  a  ruling  made  by  the  Comptroller  of  the  Cur- 
rency under  date  of  July  16,  1920,  in  response  to  a  request  from 
the  Governor  of  the  Federal  Reserve  Board  for  an  opinion  as  to 
the  right  of  a  national  bank  located  in  California  to  appoint  an 
agent  in  New  York  to  accept,  in  belialf  of  the  bank,  drafts  drawn 
on  it  payable  in  New  York  and  to  pay  such  drafts  out  of  the 
funds  deposited  in  New  York  under  the  control  of  the  agent. 

Receipt  is  acknowledged  of  your  letter  of  July  16,  which  raises  the 
question  of  the  right  of  a  national  bank  located  in  California  to 
appoint  an  agent  in  New  York  to  accept  in  behalf  of  the  bank  drafts 
drawn  on  it  payable  in  New  York  and  to  pay  such  drafts  out  of  the 
funds  deposited  in  New  York  under  the  control  of  the  agent. 

You  state  as  this  is  a  matter  within  the  jurisdiction  of  my  office 
you  would  like  to  be  advised  as  to  the  answer  which  shall  be  made. 

Frequent  requests  have  been  received  from  national  banking  associa- 
tions to  establish  agencies  for  the  transaction  of  a  part  of  their 
business  at  points  other  than  the  banking  house,  and  it  has  been 
the  uniform  practice  of  the  office  to  decline  approving  such  requests. 

In  December,  1919,  a  national  bank  in  New  York  requested  to  be 
authorized  to  establish  an  agency  in  that  city  to  receive  deposits 
from  its  customers  and  accompanied  the   request  with   a   brief   of 


258  ACCEPTANCES 

counsel  insisting  that  the  establishment  of  such  an  agency  would  not 
be  in  violation  of  the  National  Bank  Act. 

Notwithstanding  previous  rulings  of  the  office,  in  view  of  the 
urgent  request  of  the  bank  and  of  its  counsel,  the  matter  was  re- 
ferred to  the  Solicitor  of  the  Treasury,  and  under  date  of  December 
9,  1919,  an  opinion  v/as  received  from  him  stating  that  such  action 
would  be  in  violation  of  the  National  Bank  Act,  and  that  the  re- 
quest of  the  bank  could  not  be  approved  without  legislative  sanction. 

Section  5190,  U.  S.  E.  S.,  provides  in  part  that  "the  usual  business 
of  each  national  banking  association  shall  be  transacted  at  an  office 
or  banking  house  located  in  the  place  specified  in  its  organization 
certificate. ' '  This  has  been  construed  by  the  Attorney  General  and 
by  the  Solicitor  of  the  Treasury  to  mean  one  place  or  house. 

It  would  perhaps  not  be  questioned  that  accepting  and  paying 
drafts  is  a  part  of  the  usual  business  of  a  national  bank,  and  it  has 
been  held  in.  the  case  of  Armstrong  v.  Second  National  Bank  (38 
Fed.,  883)  that  an  arrangement  by  the  bank  to  provide  for  the 
cashing  of  checks  drawn  upon  it  at  any  other  place  than  its  office 
or  banking  house  would  be  in  violation  of  section  5190. 

The  same  rule  would  seem  to  apply  to  the  payment  of  drafts  as 
to  the  payment  of  checks. 

It  is  also  my  opinion  that  it  would  be  bad  policy  on  the  part  of  a 
bank  to  authorize  the  accepting  of  drafts  drawn  upon  it  by  an  agent 
authorized  by  power  of  attorney  who  is  not  an  officer  of  the  bank. 

For  these  reasons  I  am  of  opinion  that  the  request  of  the  California 
bank  should  not  be  approved,  and  if  approved  would  be  in  violation 
of  section  5190,  U.  S.  E.  S. 


PART  III 

DATA  FOE  TRADE  ACCEPTANCE 
CAMPAIGNS 


The  ■writer  of  this  book,  through  professional  business  reports 
and  services,  has  put  the  acceptance  into  use  with  about  two  hundred 
firms  in  all  sections  of  the  United  States.  The  matter  in  many  of 
the  following  chapters  has  been  used  in  whole  or  in  part  in  the 
launching  of  trade-acceptance  campaigns  by  associations,  bankers, 
and  business  men. 

In  these  chapters  are  also  carefully  explained  practical  methods 
which  experience  has  proved  will  gain  results  for  those  planning  to 
use  the  acceptance. 

It  is  obvious  that  for  the  above  purposes  the  treatment  must  of 
necessity  be  from  a  positive  (not  to  say  "propaganda")  standpoint 
and  couched,  not  in  academic  terms,  but  in  the  language  best  adapted 
to  impress  the  class  to  whom  it  is  addressed.  It  will  be  well  there- 
fore to  read  these  chapters  with  this  in  mind  rather  than  to  consider 
them  as  an  unprejudiced  analysis  of  the  subject. 


CHAPTER  XX 

WHAT  CAN  THE  TRADE  ACCEPTANCE  DO  FOR  THE  AMERICAN  BUSINESS 

MAN?' 

If  we  put  ourselves  in  the  place  (Jf  the  average  American 
business  man  who  is  considering  "accepting"  a  trade 
acceptance  sent  him  by  a  seller,  or  is  himself  sending  one 
out,  this  is  the  first  question  that  will  come  to  our  mind: 
"What  can  the  trade  acceptance  do  for  me?"  It's  a  fair 
question,  and  merits  a  fair  answer.  It  is  most  desirable 
that  this  answer  be  couched  in  terms  that  can  be  under- 
stood, not  only  by  the  banker  or  credit  man,  but  equally 
by  the  average  merchant  or  manufacturer. 

Almost  all  business  men  are  sellers,  buyers,  and  borrow- 
ers, so  that  every  phase  of  the  application  of  acceptances 
in  buj'ing,  selling,  or  banking,  will  be  of  nearly  equal 
interest  to  all.  Let  us  examine  briefly  some  of  the  benefits 
that  may  accrue  to  the  seller,  buyer,  and  banker,  through 
the  general  use  of  trade  acceptances. 

What  the  Trade  Acceptance  Will  Do  for  the  Seller. — 

It  will : 

Make  credit  business  safer; 

Make  credit  business  more  profitable ; 

Make  credit  business  grow ; 

Command  the  consideration  and  respect  of  the  bankers, 

sellers  and  buyers  with  whom  he  deals ; 
Help  to  gauge  accurately  cash  resources ; 


*  The  substance  of  this  chapter  has  been  furnished,  in  whole  or  in 
part,  to  trade  associations,  banks,  etc.,  seeking  concrete  data  on  the 
advantages  of  trade  acceptances  for  presentation  to  their  clients. 

261 


262  ACCEPTANCES 

Help  to  limit  his  borrowing  to  his  exact  needs ; 

Help  to  reduce  interest  charges  to  funds  in  use ; 

Help  to  obviate  much  uncertainty  in  making  collections ; 

Help  to  eliminate  customers  who  are  slow  pay ; 

Help  to  preclude  the  taking  of  unearned  cash  discounts ; 

Help  to  prevent  the  customer  from  taking  extra  time 
over  agreed  terms : 

Help  to  eliminate  misunderstandings  and  friction  over 
credits : 

Help  to  discontinue  acting  as  customer's  banker; 

Help  to  discount  up  to  100  per  cent  of  good  trade  ac- 
ceptances ; 

Help  to  obtain  funds  to  discount  his  bills; 

Help  to  take  advantage  of  desirable  cash  bargains; 

Help  to  compile  for  his  business  an  accurate  cash  budget ; 

Help  to  borrow  adequate  funds  as  needed  for  his  busi- 
ness : 

Help  to  borrow  for  his  business  at  a  reasonable  rate  of 
interest ; 

Help  to  carry  customers  (through  bankers)  when  they 
need  (and  are  entitled  to)  extended  time; 

Help  to  buy  money  from  banker  on  business  basis; 

Help  to  get  business  accommodations,  not  "special 
favors. ' ' 

Most  Sellers  Are  Also  Buyers. — Since  most  sellers  are 
also  buyers,  therefore  they  will  also  benefit  from  any  ad- 
vantages to  a  buyer  derived  from  trade  acceptances,  as 
well  as  from  the  fully  proven  principle  that  anything  which 
tends  to  make  more  profitable  the  business  of  a  customer 
reacts  to  the  advantage  of  the  seller  through  more  gener- 
ous buying  and  more  satisfactory  paying  by  the  buyer. 
Therefore,  the  benefits  to  the  buyer  should  be  of  equal 
interest  to  all  American  business  men ;  and  here  are  some 
of  them : 


THE  AMERICAN  BUSINESS  MAN  263 

What  the  Trade  Acceptance  Will  Do  for  the  Buyer. — 

It  will : 

Help  the  buyer  when  needing  (and  deserving)  extra  time 
accommodations ; 

Help  the  buyer  not  to  miss  discounts; 

Help  the  buyer  not  to  overlook  prompt  payment  on  due 
dates ; 

Help  the  buyer  to  judge  when  he  must  collect  from  his 
own  customers; 

Help  the  buyer  to  judge  when  to  ask  seller  for  extended 
time; 

Help  the  buyer  to  judge  of  distribution  of  his  purchases ; 

Help  the  buyer  to  judge  of  distribution  of  his  pay- 
ments ; 

Help  the  buj^er  to  judge  when  and  how  much  to  borrow 
from  banks; 

Help  the  buyer  to  show  banker  where  funds  asked  for 
will  go; 

Help  the  buyer  to  borrow  more,  through  banker's  accu- 
rate knowledge  of  his  affairs ; 

Help  the  buyer,  in  some  cases,  to  ask  from  seller  special 
favors  for  accepting; 

Help  the  buyer  to  measure  more  accurately  his  risks; 

Help  the  buyer  to  do  a  businesslike  and  profitable  busi- 
ness. 

Benefits  of  the  Banker  Shared  by  the  Borrower. — The 

benefits  of  the  banker  are  shared  by  the  business  man. 
Investigation  shows  that  accommodations  and  interest  rates 
accorded  to  the  business  man  by  the  banker  are  strictly  in 
accordance  with  the  liquidity  and  profit  to  the  banker  of 
his  commercial  loans  to  buyers  or  sellers.  Therefore,  for 
the  reflected  benefits  he  should  derive,  every  benefit  re- 
ceived by  the  banker  should  be  fully  considered  and  appre- 
ciated by  the  business  borrower.    Here  are  some  of  them: 


264  ACCEPTANCES 

Helps  the  Banker  Will  Receive  from  the  Trade  Accept- 
ance.— The  trade  acceptance  will  help  the  banker : 

To  gauge  more  accurately  customer's  needs; 

To  gauge  more  accurately  probable  use  of  funds  bor- 
rowed ; 

To  gauge  more  accurately  basis  of  loan ; 

To  obviate  the  necessity  of  loaning  on  mixed  collateral; 

To  rediscount  paper  more  advantageously; 

To  handle  greater  amount  of  legitimate  paper  for  cus- 
tomers ; 

To  judge  of  liquidity  of  customer's  transactions; 

To  create  commercial  paper  of  better  class ; 

To  care  more  fully  for  customer's  legitimate  needs; 

To  loan  on  liquid  assets,  not  "special  favors"; 

To  prevent  necessity  of  customer's  assuming  dangerous 
loans ; 

To  give  customers  needed  counsel ; 

To  increase  the  amount  of  legitimate  banking  paper ; 

To  increase  liquidity  of  secondary  reserve; 

To  encourage  prompt  collections  from  customers ; 

To  create  and  keep  better  credit  conditions. 

Helps  to  General  Business. — The  trade  acceptance  will 
help  the  business  man : 

To  do  credit  business  on  banking  principles ; 

To  release  open-account,  frozen  capital : 

To  do  more  business  safely  on  less  fixed  capital ; 

To  create  lower  rates  of  discount  through  open  discount 

market ; 
To  borrow  needed  funds  at  less  cost ; ' 
To  guard  against  over-extension ; 
To  get  more  uniform  time  and  terms ; 
To  put  up  properly  to  the  banker  the  carrying  of  credits ; 
To  improve  business  finance,  and  thus  to  make  better 

business  men ; 


THE  AMERICAN  BUSINESS  MAN  265 

To  assist  the  United  States  in  relieving  the  strain  on 
credit,  in  times  of  stringency,  through  Federal  Re- 
serve Bank  facilities. 

The  foregoing  may  seem  quite  an  impressive  list  of 
benefits,  and  rightly  so;  but  the  shrewd  business  man 
usually  judges  that  there  are  two  sides  to  a  question,  and 
will  inquire  what  the  opponents  to  the  adoption  of  trade 
acceptances  have  to  say. 

Objections  against  Acceptances. — There  are,  of  course, 
objections  that  can  be  raised  to  the  use  of  the  trade  ac- 
ceptance in  American  business,  but  inquiry  has  found  that 
the  highest  authorities  on  the  subject  do  not  regard  them 
as  fundamental.  These  objections  may  be  more  or  less 
''real"  now,  and  some  of  them  difficult  to  handle,  but 
objections  have  little  weight  with  the  average  business  man 
in  marketing  his  wares,  or  only  serve  to  sharpen  his  wits 
and  to  increase  efforts  to  overcome  all  such  obstacles  to 
100  per  cent  success. 

If  this  analysis  has  been  correct,  and  the  principles  and 
grounds  are  sound  and  firm,  the  obstacles  are  a  mere 
detail  to  be  overcome  in  working  out  the  use  of  this  credit 
device.  Here  are  some  of  the  common  objections  to  the 
adoption  of  the  trade  acceptance,  with  hints  as  to  their 
solutions : 

Satisfaction  with  present  open-account  credit  methods  of  the 
U.  S.  (Study  successful  methods  of  other  big  commercial  na- 
tions. ) 

Difficulty  in  educating  buyers  to  "accept."  (Use  adequate  and 
attractive  explanatory  data  and  methods.) 

Seller's  objection  to  the  trouble  of  puttmg  acceptances  into  use. 
{Not  difficult  when  proper  system  is  adopted.) 

Objection  of  sales  department  to  "new  terms."  {Make  them 
attractive  to  customers.) 

Objection  by  bankers  that  their  legitimate  profits  will  be  cur- 
tailed by  the  use  of  trade  acceptances.  {Not  attitude  in  other 
countries  or  with  best  hankers  here.) 


266  ACCEPTANCES 

Objection  by  bankers  that  sale  of  trade  acceptances  lessens  bor- 
rowers' assets.     {Depends  on  what  is  done  with  proceeds.) 

Objection  by  bankers  to  passing  on  to  borrower  preferential 
rate  when  accorded  by  Federal  Reserve  Banks  on  trade  ac- 
ceptances. (This  is  purely  optional  but  a  fair  method  of  pro- 
cedure to  consider.) 

Objection  by  bankers  that  cost  of  handling  loans  will  be  increased 
on  account  of  increase  in  items.  {This  is  equitably  adjusted 
in  other  countries  and  no  doubt  will  be  in  U.  S.) 

Objection  by  buyer  that  he  dislikes  to  sign  notes  or  drafts. 
{Explain  difference  of  this  class  of  paper.) 

Objection  by  buyer  to  being  held  down  to  exact  day  of  payment. 
{Let  him  make  terms  when  buying  that  he  can  live  up  to  when 
paying,  or  request  an  extension,  not  take  it.) 

Objection  by  buyer  that  he  does  not  understand  plan.  {Careful 
explanation  at  outset  is  always  best.) 

Objection  by  buyer  that  he  does  not  understand  how  he  will 
benefit  by  accepting.  {Blake  it  obligatory  or  offer  attractive 
terms. ) 

Objection  by  buyer  that  he  forfeits  privilege  of  return  or  claim 
on  goods.     {Not  valid  with  any  fair-minded  seller  or  buyer.) 

Objection  by  buyer  that  "other  houses"  don't  ask  him  to  "ac- 
cept."    {Urge  its  adoption  by  others  in  your  line  of  trade.) 

Objection  by  seller  that  competitors  are  not  using  trade  accept- 
ances. {The  first  users  should  benefit  most,  where  properly 
handled.) 

Objection  by  seller  that  the  buyer  won't  like  it.  {Sell  it  to  Mm 
like  any  other  new  line  of  goods.) 

Objection  by  seller  that  it  may  tend  to  extend  period  of  credit. 
{Need  not  be  used  in  short-term  credits,  although  it  tends  to 
restrict  rather  than  extend  time  of  Payment.) 

Objection  by  buyer  that  it  will  kill  the  cash  discount.  {Is  purely 
a  CREDIT  not  a  cash  instrument.) 

Objection  by  buyer  to  "anything  new  under  the  sun."  {Be  pa- 
tient ivith  him.) 

Objection  by  seller  to  "anything  new  under  the  sun."  {He 
should  wake  up.) 

Objection  by  banker  to  "anything  new  under  the  sun."  {There 
are  not  many  of  them  left.) 

The  foregoing  inventory  of  benefits  and  drawbacks  in- 
cident to  the  use  of  trade  acceptances  for  each  class  of 


THE  AMERICAN  BUSINESS  MAN  267 

users  practically  covers  the  sum  total  of  ' '  pros  and  cons. ' ' 
It  will  be  only  necessary  for  the  reader  to  compare  as  a 
whole  the  list  of  effects,  beneficial  or  otherwise,  to  be  able 
to  realize  that  the  use  of  the  trade  acceptance  is  funda- 
mentally sound  and  that  no  valid  objections  exist  against 
its  general  employment  in  credit  transactions  involving  the 
sale  or  purchase  of  goods  or  merchandise  of  every  descrip- 
tion. 

The  Federal  Reserve  Board  has  even  gone  so  far  as  to 
include  as  a  basis  for  trade  acceptances  the  sale  of  adver- 
tising of  a  commodity,  and  the  Federal  Reserve  Banks  are 
authorized  to  rediscount  at  preferential  rates,  on  the  same 
basis  as  those  representing  any  merchandise,  proper  trade 
acceptances  accepted  by  those  buying  such  commercial  ad- 
vertising; evidently  with  the  thought  that  such  advertis- 
ing should  return  to  the  acceptor,  through  goods  sold,  the 
cash  wherewith  to  meet  the  acceptance  when  due.  This 
puts  business  advertising  in  the  commodity  class. 

Most  domestic  merchandise  operations  on  credit  come 
within  the  scope  of  the  acceptance,  for  good  or  ill,  and  the 
consensus  of  those  best  qualified  to  judge  is  that  bankers 
and  business  men,  big  and  little,  will  receive  more  concrete 
advantages  from  cooperation  leading  to  the  adoption  of 
acceptances,  where  practical,  than  through  any  other  rad- 
ical change  in  credit  policy  that  has  been  offered  in  the 
past  decade  or  two  to  the  commercial  world  of  the  United 
States. 


CHAPTER  XXI 

ACCEPTANCES    AND   THE   MANUFACTURER    AND    WHOLESALER* 

Accuracy    and   Economy    of   the    Trade    Acceptance. 

— That  "credit  is  the  life  of  the  trade"  is,  no  doubt, 
true  of  most  lines,  and  how  to  liven  up  the  credits 
themselves  is  a  daily  problem  for  the  financial  man  of 
every  manufacturer  or  jobber.  How  to  make  credit  more 
accurate,  more  economical,  more  profitable,  is  a  valuable 
study  for  any  executive  or  credit  man  of  a  manufacturer 
or  jobber,  whether  large  or  small. 

The  trade  acceptance  is  distinctly  a  credit  instrument, 
and  is  designed  solely  to  improve  and  even  enlarge  the 
scope  of  proper  credit  accommodation,  not  to  supersede 
sales  for  cash.  The  fact  that  the  buyer  has  agreed  that 
his  debt  will  be  paid  "on  a  certain  day  at  a  certain  place 
in  the  United  States,  in  dollars"  certainly  works  for 
accuracy  of  credits,  even  in  cases  where  the  seller  may  have 
extended  the  usual  nominal  open-credit  terms,  except  in 
the  rare  cases  where  the  acceptance  is  not  met  when  due. 
When  all  factors  are  known  and  all  lost  motion  on  guess- 
work and  the  attendant  necessary  "margins  of  safety" 
can  be  eliminated,  economy  in  credits  should  ensue,  with 
its  attendant  benefits. 

The  foregoing  factors — accuracy  and  economy — will  place 
credit  on  the  high  business  basis  it  deserves,  and  may  make 
it  as  eagerly  sought  after  as  the  desirable,  though  costly, 

^  The  purpose  of  this  chapter  is  to  make  clear  to  the  manufacturer 
and  jobber  the  advantages  they  can  derive  from  the  use  of  accept- 
ances. Many  associations  of  manufacturers  have  used  this  simple 
form  of  explanation  with  their  members. 

268 


MANUFACTURER  AND  WHOLESALER        269 

cash-discount  business  that  most  large  sellers  so  highly- 
prize. 

In  this  connection  the  following  quotation  from  a  letter 
from  an  actuary  of  the  highest  standing  and  of  broad 
commercial  experience  is  pertinent: 

I  believe  that  ere  long  the  larger  part  of  our  business  transac- 
tions on  time  will  be  placed  in  shai^e  for  adjustment  by  the  ac- 
ceptance of  time  drafts  (acceptances)  by  buyers  for  their  pur- 
chases and  I  look  for  a  general  shortening  of  credits,  both  by 
banks  and  dealers  in  merchandise  throughout  the  nation,  which 
will  be  facilitated  by  the  rapid  increase  of  the  percentage  of 
currency  per  cajjita,  which  is  taking  and  will  yet  further  take 
place. 

If  the  individual  benefits  of  a  plan  are  satisfactorily 
demonstrated  to  the  business  man,  it  will  tend  to  arouse 
his  more  active  interest  in  the  general  benefits,  which  may 
more  or  less  directly  work  to  his  advantage.  The  chief 
benefits  of  the  acceptance  to  the  manufacturer  and  jobber 
will  be  touched  upon  in  this  chapter. 

Trade  Acceptance  the  Only  Paper  Necessary  from  Order 
to  Receipt. — Possibly  one  of  the  most  concrete  illustrations 
of  the  economy  of  the  trade  acceptance,  and  one  easily 
demonstrated,  is  the  concentrating  in  one  paper,  the  trade 
acceptance,  of  the  whole  credit  transaction,  except  the 
order  and  detailed  invoice.  If  the  trade  acceptance  is 
made  at  the  end  of  the  month  to  cover  the  period's  trans- 
actions, it  may  cover  a  whole  month's  business.  Its  prepa- 
ration, acceptance  and  discount,  or  collection  through  the 
bank,  cover  all  needed  processes  or  routine  between  seller 
and  buyer  connected  with  one  or  many  sales  and  pur- 
chases. 

Except  for  detail,  the  accepted  acceptance  furnishes  the 
invoice,  or  statement;  the  transmission  or  collection  letter; 
the  "check"  the  buyer  draws,  with  data  as  to  what  it 
covers,  and  its  receipt,  or  acknowledgment,  by  the  seller 


270  ACCEPTANCES 

(where  customary).  It  does  away  with  follow-up  state- 
ments, or  ' '  reminders ' ' ;  collection  or  dunning  letters  or 
drafts;  and  even  "putting  in  hands  of  attorney,"  except 
when  the  trade  acceptance  is  dishonored.  This  last  is  a 
negligible  consideration,  when  credits  are  well  considered. 

The  acceptance  seems  to  form  an  ideal  record  to  follow 
through  for  the  seller,  and  a  still  more  complete  one  for 
the  buyer,  because  when  he  pays  he  recovers  the  original 
acceptance  with  all  details  thereon,  including  the  seller's 
official  indorsement  and  a  record  of  payment  by  the  buyer 's 
own  bank. 

This  simple  transaction  is  one  to  minimize  disputes  and 
friction  of  all  kinds,  which  usually  arise  after  details 
have  become  dim  and  remain  uncorrected  for  a  period  of 
time — such  misunderstandings  often  requiring  the  sales- 
department  's  or  salesmen 's  time  to  straighten  out.  A  trade 
acceptance  is  either  not  accepted  until  all  details  are  satis- 
factory and  clear,  or  it  is  straightened  out  immediately  on 
receipt  of  goods. 

One  paper,  "from  order  to  receipt,"  is  the  height  of 
simplicity,  which  means  efficiency  at  its  best,  and  is  espe- 
cially valuable  when  covering  the  numerous  transactions 
of  most  manufacturers  or  jobbers. 

Credit  Conditions  Accurately  and  Graphically  Shown. — 
Trade  acceptances  should  afford  relief  to  the  "head"  of 
the  business,  as  w^ell  as  to  the  head  of  the  credit  depart- 
ment, for  the  reasons  that  follow.  They  form  easily  dis- 
cernible evidence,  which  automatically  checks  itself,  that 
all  such  credits  are  not  past  due  since  a  true  trade  ac- 
ceptance is  not  issued  for  past-due  accounts  or  renewed 
when  they  are  not  paid.  Non-payment  immediately  acts 
as  a  danger  signal  to  the  seller,  and  thereafter  these  ac- 
counts are  under  such  special  observation  and  treatment  by 
all  departments  as  may  seem  necessary. 

When  credits  are  on  an  open-account  plan  it  is  prac- 


MANUFACTURER  AND  WHOLESALER        271 

tically  impossible  to  judge  what  the  collections  will  be 
in  a  given  period.  Debtors  may  take  the  time  for  oash 
discount,  they  may  take  full  net  time,  or  they  may,  as 
often  happens,  take  over  the  time  allowed.  Part  of  these 
accounts  may  be  sold  on  one  set  of  terms ;  part,  maybe, 
on  another.  It  is  not  practical  even  to  judge  collections 
by  some  past  period. 

A  wholesale  credit  manager  is  a  superman  if  he  can 
even  guess  within  a  considerable  percentage  what  will  be 
collected  in  a  given  time.  This  guesswork  is  often  both 
expensive  and  risky.  When  trade  acceptances  are  used, 
instead  of  open  accounts,  figures  can  be  practically  exact 
as  to  when  the  money  will  be  in  hand  and  arrangements 
may  be  made  in  advance  accordingly  under  the  best  pos- 
sible terms. 

Investigation,  covering  hundreds  of  users  of  trade  ac- 
ceptances, proves  that  firms  will  pay  a  bank  obligation 
when  they  will  overlook  or  disregard  an  obligation  to  a 
manufacturer  or   jobber.     One   manufacturer  says: 

My  customers  will  pay  a  trade  acceptance  sent  them  through 
a  bank,  when  they  wouldn't  pay  me.  They  seem  to  fear  that 
the  banker  would  give  them  some  kind  of  a  "black  mark,"  and 
so  they  manage  to  pay  almost  all  trade  acceptances  presented 
through  a  bank. 

A  jobber  recently  said: 

Frequently  I  am  called  on  the  telephone  by  a  credit  man  of 
a  competitive  house,  who  asks,  "How  is  So-and-So's  account 
with  you  to-day?"  I  say:  "Well,  he  owes  us  only  the  current 
month's  indebtedness.  The  balance  of  the  account  ran  off  the 
tenth  of  the  month  and  it  was  paid."  He  says :  "I  don't  un- 
derstand. Why,  he  owes  us  $6,000  and  to-day  has  paid  us  $1,000 
on  account  and  has  promised  to  pay  the  balance  on  future  dates 
as  frequently  as  he  can  get  the  money  together."  The  explana- 
tion is  that  the  buyer  gave  us  trade  acceptances  and  he  met  th^n 
when  due. 

Trade  acceptances  are  almost  invariably  paid  when  due.     In 


272  ACCEPTANCES 

the  fifteen  months'  operation  of  the  acceptance  in  our  concern 
we  have  had  only  one  or  two  that  have  not  been  met,  and  there 
was  a  reasonable  explanation  for  these  eases. 

Bookkeeping-  and  Accounting"  Simplified. — Even  such 
little  benefits  as  satisfaction,  the  avoidance  of  friction,  and 
small  savings  of  time  and  money  are  gained  by  having 
each  customer's  account  in  balance  for  the  previous  month, 
as  is  the  case  when  many  accounts  are  paid  by  trade  ac- 
ceptance. This  latter  condition  causes  one  of  the  many 
bookkeeping  short-cuts  and  savings  that  can  be  worked 
out  through  the  settlement  method  of  trade  acceptance. 

The  accepted  acceptance  is  a  practical  acknowledgment 
of  the  correctness  of  the  charge,  if  not  of  the  delivery,  and 
is  valuable  to  the  accounting  department,  especially  in  case 
of  dispute  or  default  or  return  of  goods,  because  it  shows 
a  legal  acceptance  of  charge  and  goods  by  buyer  and  makes 
the  obligation  of  the  buyer  rest  in  the  acceptance  rather 
than  on  the  open,  unproved  account.  Automatic  closing  of 
each  credit  is  not  only  effective  and  economical,  but  offers' 
the  least  chance  for  argument  and  friction  with  the  buyer, 
because  it  is  apparent  to  him,  without  the  need  of  the 
seller's  bringing  it  to  his  attention,  that  it  is  "up  to  him," 
and  he  is  constrained  to  treat  the  debt  accordingly.  Any 
extension  that  the  seller  finds  desirable  or  expedient  to  give 
must  be  arranged  for  by  the  buyer  with  a  definite  date  of 
closing  agreed  upon  and  is,  at  the  same  time,  duly  appre- 
ciated as  a  favor  of  the  seller,  who  usually  covers  any 
unpaid  acceptance  by  a  note,  with  interest  from  the  due 
date,  as  is  the  custom  in  most  foreign  countries. 

Special  Accommodations:  Over-Extension. — Special  ac- 
commodations to  all  buyers  (the  manufacturer  or  jobber 
included)  may  be  necessary  and  desirable,  at  times.  Busi- 
ness credits  should  be  reasonable,  elastic,  and  able  to  accom- 
modate themselves  to  situations  or  special  conditions  which 
may  arise.     However,  extended  accommodations  that  are 


MANUFACTURER  AND  WHOLESALER        273 

not  warranted  must  be  carefully  guarded  against,  since  the 
best  customers  can  be  made  undesirable  by  unreasonable 
indulgence. 

The  trade  acceptance  lends  itself  to  giving  a  "little 
extra  time  or  special  discount,"  when  it  seems  best  at  the 
time  of  sale,  but  it  also  tixes  this  accommodation  exactly 
and  graphically,  stamping  it  as  a  special  concession  to  the 
buyer,  and,  therefore,  only  applicable  upon  special  written 
and  signed  arrangement  with  and  sanction  of  the  seller. 
The  very  fact  that  it  is  thus  forcibly  and  exactly  defined, 
as  to  date,  amount,  and  terms,  by  both  parties  con- 
cerned, tends  to  throw  safeguards  around  it  for  all. 

Over-extension  is  a  dangerous  game  for  both  buyer  and 
seller.  The  buyer,  if  he  handles  these  matters  carelessly, 
is  apt,  as  they  say  in  the  vernacular,  "to  bite  off  more 
than  he  can  chew. ' '  This  is  unfortunate  for  all  concerned 
and  reflects  unfavorably  on  legitimate  selling.  It  is  a  con- 
dition that  is  being  discouraged  by  the  best  business  men, 
both  buyers  and  sellers,  because  the  latter  see  the  dangers 
from  over-selling  as  well  as  over-buying  and  are  more  care- 
fully guarding  against  the  tendency  to  over-extension  and 
buying  beyond  their  own  resources  while  carrying  the 
buyer's  credits  as  well  as  their  own.  Many  conservative 
wholesalers  do  this  by  setting  a  sales  quota  for  a  district 
and  sub-quotas  for  each  buyer. 

The  trade  acceptance,  in  helping  to  bring  to  the  buyer's 
attention  the  "day  of  reckoning,"  automatically  works  to 
make  the  seller's  outstandings  mOre  dependable  and  safe, 
and  when  such  outstandings  are  in  good  trade  acceptances, 
not  only  are  they  better  safeguarded,  but  the  good  debts 
may  be  financed  under  proper  conditions  up  to  100  per 
cent  and  thus  relieve  any  shortage  of  resources  of  the 
wholesaler  to  carry  the  account  properly  to  its  maturity 
on  the  best  terms.  At  all  times  all  safeguards  against  over- 
extension should  be  well  considered. 


274  ACCEPTANCES 

To  the  treasury  division  of  a  wholesale  business  the 
ability  to  gauge  accurately  when  outstandings  may  be 
expected  to  be  settled,  instead  of  guessing  when  an  open 
account  will  be  paid,  is  like  the  guiding  of  a  ship  by  the 
compass  compared  to  the  steering  by  the  stars  or  the 
mariner's  judgment.  The  trade  acceptance  acts  as  a 
compass  for  the  credit  "Captain." 

Terms  for  Buyer  as  Well  as  Seller. — The  average  buyer 
is  very  particular  as  to  "terms"  when  he  buys,  and  ex- 
pects the  seller  to  put  them  in  writing.  In  signing  or 
sanctioning  an  order,  the  buyer  legally  agrees  to  such 
terms  and  can  be  held  to  them  in  a  court  proceeding,  and 
it  seems  absurd  that  such  a  large  percentage  of  average 
buyers  disregard  or  stretch  such  terms  to  the  breaking 
point,  when  it  is  their  obligation,  as  much  as  the  seller's, 
to  live  up  to  them. 

Why,  in  all  fairness,  the  buyer  should  not  sign  an 
acceptance,  just  as  the  seller,  or  his  agent,  O.K. 's  or  ac- 
knowledges an  order,  would  be  beyond  any  fair-minded 
buyer  to  explain ;  except  with  such  an  excuse  as  "  I  never 
did  before"  or  "others  do  not  ask  it." 

The  buyer  takes  it  for  granted  that  the  seller  will  live 
up  to  his  agreement  (and  sees  that  he  does)  ;  the  seller 
can  take  the  same  high  ground  in  the  attitude  that  the 
buyer  expects  to  pay  when  due  and  will  have  no  objection 
to  evidencing  his  willingness  by  ' '  acceptance. ' ' 

If  by  diplomacy  or  otherwise  the  buyer  can  be  shown 
the  fairness  and  desirability  of  accepting,  a  big  percentage 
of  outstandings  can  be  carried  in  "acceptances  receivable." 
Thus,  a  reserve  is  furnished  to  the  treasury,  which  can  be 
so  accurately  counted  upon  or  realized  upon,  that  it  will 
put  it  in  an  easier  and  safer  position  than  ever  before. 
This  condition  has  been  the  making  of  some  wholesale 
businesses,  the  saving  of  others,  and  has  been  of  benefit  to 
practically  all  who  used  it. 


MANUFACTURER  AND  WHOLESALER         275 

With  such  a  "reserve"  available  to  the  treasury  depart- 
ment, any  calls  for  cash  for  discounts  or  bargains  can 
usually  be  met  "without  effort  or  delay,  and  at  the  lowest 
interest  or  discount  rates. 

Banking  Benefits  to  the  Seller. — It  will  not  be  neces- 
sary for  the  solvent  wholesaler  to  have  more  cash  in  his 
banks  than  the  average  requirements  demand,  since  it  can 
be  obtained  through  discount  of  trade  acceptances  at  the 
bank,  or,  when  the  acceptors  are  nationally  known,  in  the 
competitive  discount  market.  Trade  acceptances  may  cause 
a  very  desirable  change  in  the  attitude  of  a  client  toward 
his  banker.  Through  inquiry  it  is  found  that  now  the 
average  borrower  feels  "like  a  suppliant  at  the  throne," 
although  this  is  probably  far  from  the  banker's  desire  or 
intention. 

Of  course,  in  case  of  big  borrowers,  "lines  of  credit" 
given  by  bankers  are  more  or  less  accurately  based  upon  the 
statements,  written  and  verbal,  of  the  borrower,  but  in 
such  cases  a  banker  leaves  a  safe  margin  on  the  "accounts 
receivable"  (usually  50  per  cent),  and  grants  the  loan  or 
special  accommodation  without  the  usual  "give  and  take" 
of  a  common  commodity  transaction. 

Trade  Acceptance  for  Bank  Credits. — We  will  now  sup- 
pose that  the  bank  grants  the  usual  line  of  credit  or  dis- 
count on  single-name  paper  of  the  wholesaler  based  upon 
his  statement  showing  tangible  assets  of  plant,  inventory, 
and  accounts  receivable  (except  trade  acceptances  receiv- 
able) over  current  liabilities. 

The  same  borrower  can  also  come  to  the  banker  and  offer 
him,  in  addition  to  the  above  assets,  the  current  obliga- 
tions of  many  other  business  men  (trade  acceptances),  in- 
dorsed by  the  borrower  and  which,  it  may  be  reasonably 
supposed,  are  backed  up  by  "goods  or  the  proceeds  there- 
from in  the  hands  of  the  acceptor  (debtor)  with  which  to 
liquidate  the  obligation,"  as  trade  acceptances  are  strictly 


276  ACCEPTANCES 

defined  and  limited  by  the  rulings  of  the  Federal  Reserve 
Board. 

This  sale  to  the  banker,  or  in  the  discount  market,  of 
other  people's  obligations,  is  a  different  thing  from  bor- 
rowing on  one-name  paper  based  on  rather  indefinite  assets 
and  one  that  the  banking  institution  which  discounts  or 
buys  the  acceptance  will  come  to  look  on  as  an  attractive 
class  of  "accommodation"  and  often  have  much  greater 
respect  for  this  syndicated  responsibility,  backed  by  the 
buyer's  name,  than  for  the  single  obligation  alone. 

At  least,  the  Federal  Reserve  Board  rulings  indicate  this 
should  be  the  attitude  of  bankers,  and  it  is  probable  that 
the  borrower  will  find  an  added  respect  accorded  by  the 
banker  to  such  financing,  when  the  acceptances  are  of  a 
good  class  and  the  banker  knows  the  borrower  is  conserva- 
tive in  the  granting  of  credits. 

It  is  worth  while  to  have  the  banker  favorable  to  the 
seller's  carrying  trade  acceptances  receivable  and  willing 
to  take  the  good  ones  offered  him,  as  this  may  mean  a 
100  per  cent  sale,  not  a  50  per  cent  loan  on  accounts  re- 
ceivable, as  in  the  past.  Since  the  banker  merely  has  to 
indorse  acceptances  over  to  the  Reserve  Bank  and  get  100 
per  cent  cash,  at  often  i/o  of  1  per  cent  per  annum  less 
interest  than  his  "other  commercial  paper,"  he  should  be 
glad  to  get  good  acceptances  and  should  grant  discounts 
thereon  freely. 

The  Federal  Reserve  Board's  ruling  also  exempts  the 
banker  from  limiting  his  discount  to  one  borrower  on 
diversified  trade  acceptances  to  10  per  cent  of  his  capital 
and  surplus.  The  Government  has  thus  recognized  and 
backed  up  the  American  business  man,  when  he  does  his 
financial  business  in  a  businesslike  and  safe  manner.  The 
banker  knows  that,  if  he  does  not  give  "accommodations" 
on  good  trade  acceptances,  borrowers  are  able  to  go  to 
the  banker  across  the  street  or  in  the  next  town,  or  even 


MANUFACTURER  AND  WHOLESALER        277 

to  the  commercial  discount  market,  with  "gilt-edge"  ac- 
ceptances, and  sell  them  at  economical  rates,  which  is  much 
more  difficult  with  other  paper  based  on  open  accounts. 

As  the  Reserve  Banks  often  allow  member  banks  a 
preferential  discount  on  eligible  trade  acceptances  and 
the  banks  know  that  it  averages  more  liquid  and  safe 
than  "other  commercial  paper,"  the  percentage  of  dis- 
count is  sometimes  slightly  lower  than  on  one-name  paper, 
except  of  the  highest  grade. 

Another  Saving  to  the  Borrower. — Here  is  a  saving 
worth  while  for  any  manufacturer  or  jobber  to  figure  on. 
When  getting  a  loan  or  line  of  credit,  the  banker  "expects" 
a  certain  part  of  it  to  be  kept  at  the  bank,  and  clearly 
indicates  his  indifference  to  further  loans,  if  this  balance 
of  at  least  16%  per  cent  of  such  loans  is  not  maintained. 

It  is  no  secret  that  for  the  banker  this  not  only  creates 
a  "margin  of  safety"  on  the  borrower's  single-name  loan, 
but  furnishes  the  banker  with  funds  for  loans  to  others 
to  the  amount  of  one-sixth  of  the  borrowed  money.  If  he 
is  getting  interest  thereon  at  the  rate  of  six  per  cent,  this 
works  to  increase  the  cost  of  the  loan  to  the  borrower  to  a 
rate  of  seven  per  cent  per  annum,  as  it  also  does  the  profit 
on  the  transaction  to  the  banker.  On  the  sale  or  discount 
of  trade  acceptances  (since  they  are  not  j)rimarily  the 
seller's  obligations  but  those  of  the  acceptors),  such  a 
large  margin  of  safety  or  balance  left  against  the  loan  may 
not  be  demanded  by  the  banker ;  in  which  case  the  borrower 
will  benefit  accordingly. 

Experience  shows  that  this  fact,  that  a  wholesaler 's  trade 
acceptances  are  the  obligation  of  the  "other  fellows," 
usually  in  diversified  localities  and  trades,  makes  it  safer 
for  the  banker  to  count  on  prompt  payment,  and  does 
away  with  "renewals."  This  reflects  an  equal  safety  to 
the  seller  in  that,  if  he  has  looked  well  to  his  credit  risks 
on  such  buyers,   the  probability  of  his  having   to  meet 


278  ACCEPTANCES 

more  than  a  slight  percentage  of  outstanding  trade  ac- 
ceptances himself,  on  his  contingent  liability,  is  small. 

Having  no  need  to  renew  trade  acceptances,  as  he  might 
have  to  do  on  single-name  paper  based  on  open  accounts, 
there  is  no  chance  that  the  banker  may  "turn  him  down" 
when  asking  for  "renewals,"  as  might  happen  in  times  of 
money  stringency,  low  bank  balances,  etc.  This  means 
added  safety  to  the  wholesaler.  If  the  seller  saves  some 
prime  trade  acceptances  for  a  "reserve  borrowing  fund" 
(as  do  some  banks),  he  may  feel  satisfied  that  he  will  be 
able  to  discount  them,  and,  therefore,  he  can  sometimes 
save  interest  by  borrowing  only  enough,  and  not  a  surplus, 
as  some  borrowers  do,  "to  have  some  on  hand  in  case  of 
an  emergency." 

Seller  Often  the  Buyer's  Banker. — Most  manufacturers 
and  jobbers  who  sell  on  open-account  credit  practically 
furnish  much  of  the  working  capital  upon  which  the  buyer 
handles  the  seller's  goods.  He  fabricates  the  goods  and 
stores  or  ships  them  to  the  credit  buyer.  As  the  word 
implies,  the  credit  buyer  does  not  borrow  the  money  to 
pay  for  them;  he  says,  "Charge  it."  He  does  not  even 
help  to  finance  the  deal  on  the  old  open-account  basis; 
he  just  "hangs  it  up."  The  seller  must  finance  him  until 
he  pays. 

The  manufacturer  or  jobber  probably  finds  it  necessary 
to  discount  his  bills  and,  when  necessary,  borrow  money 
with  which  to  do  it,  especially  where  he  does  not  buy  him- 
self on  trade  acceptances.  It  becomes  necessary  to  make 
more  one-name  paper  or  even  "hypothecate"  accounts, 
with  the  latter 's  consequent  dangers  and  high  expenses. 

That  this  matter  of  hypothecating  open-charge  accounts 
is  not  a  figment  of  the  imagination  is  conclusively  proved 
by  advertisements  appearing  daily  in  newspapers  all  over 
the  United  States.  Two  such  advertisements  which  ap- 
peared in  one  edition  of  a  New  York  daily  commercial 


MANUFACTURER  AND  WHOLESALER        279 

newspaper,  one  firm  advertising  offices  in  six  cities,  are 
reproduced  in  Chapter  XII. 

That  this  "hocking  of  accounts  in  secret"  is  undesirable, 
as  well  as  very  expensive,  has  been  proved  so  often  that 
it  does  not  need  successful  contradiction,  and  the  only- 
excuse  that  can  be  fairly  offered  by  firms  using  this  method 
of  financing  is  that  they  need  the  money  for  working 
capital  before  the  buj'er  is  ready  to  pay  them.  This  con- 
dition is  neither  disgraceful  nor  extraordinary,  as  it  exists 
in  all  foreign  countries  as  it  does  here ;  the  only  difference 
being  that  most  of  the  foreign  financial  systems  have  recog- 
nized it  as  a  natural  consequence  of  wholesale  business  and 
devised  a  cheap  and  open,  as  well  as  a  practical,  method 
of  covering  such  needs  through  banking  facilities. 

A  similar  simple,  honest  instrument,  which  is  used  in 
nearly  all  commercial  nations  to  cover  credit  sales,  is 
offered  to  the  American  manufacturer  and  jobber  in  the 
trade  acceptance.  The  safeguards  thrown  around  the  ac- 
ceptance by  the  law  and  rulings  of  the  Federal  Reserve 
Board  are  such  that  not  only  to  give  it  but  to  discount  it, 
for  the  legitimate  operation  of  a  business  extending  credit 
to  its  customers,  is  proof  of  highest  honesty  and  good 
judgment  in  finance. 

Why  Does  the  Buyer  Want  the  Seller  to  Be  His  Banker? 
— The  buj'er  expects  the  manufacturer  or  jobber  to  finance 
him  for  no  valid  reason,  but  merely  because  he  knows  no 
other  method,  when  it  is  not  convenient  to  pay  cash,  and 
he  is  accustomed,  often  forced,  to  credit  buying.  Many 
retailers  who  use  the  open-account  system  do  not  under- 
stand to-day  that  they  can  get  as  much,  or  even  more, 
credit  by  giving  to  the  wholesaler  the  equivalent  of  their 
purchase  in  bankable  paper,  merely  by  signing  a  trade 
acceptance,  thereby  evidencing  that  they  have  bought  such 
goods  and  will  pay  for  them  wJien  due,  and  not  one  day 
before.     This  does  not  hurt  their  standing  or  credit,  but, 


280  ACCEPTANCES 

on  the  contrary,  improves  it  with  the  bankers,  the  mer- 
cantile agencies  and  the  manufacturer  or  jobber. 

What  can  the  seller  do  with  such  paper?  He  can  prac- 
tically get  out  of  the  banking  business  by  turning  the 
credit  buyer's  paper  over  for  cash  to  the  banker.  The 
banker  then  will  be  the  credit  buyer's  banker,  and  the 
seller  will  no  longer  be  a  "banker,"  but  merely  what  he 
is — a  manufacturer  or  jobber. 

Trade  Acceptance  Not  Limited  as  to  Time. — One  good 
point  of  the  trade  acceptance  for  the  wholesaler  to  note 
is  its  elasticity  at  the  time  it  is  made ;  which  is  the  right 
time  to  arrange  terms,  even  when  there  is  a  desire  to  ex- 
tend the  time.  When  a  sale  is  made,  the  buyer  can  be 
given  as  much  time  as  seems  prudent  or  desirable,  and  the 
trade  acceptance  made  accordingly.  There  is  no  legal 
time  limit  for  a  trade  acceptance,  any  more  than  there  is 
for  a  note.  Both  have  to  be  made  within  reason,  for  the 
safety  of  all  concerned  and  in  order  to  discount  the  ac- 
ceptance, since  the  bank  will  judge  them  accordingly  and 
will  make  little  distinction  between  notes  and  acceptances 
in  judging  their  discountability.  The  banker  will  consider 
whether  the  time  given  by  the  seller  to  the  buyer  is  reason- 
able and  also  the  fact  that  the  usual  acceptance  cannot  be 
rediscounted  by  the  banker  with  a  Reserve  Bank  for  more 
than  90  days  before  due  date. 

If  the  customer  needs  extra  time,  let  him  arrange  for  it 
when  he  buys,  because  a  trade  acceptance  can  be  arranged 
accordingly  and  it  will  probably  still  be  within  the  time 
limit  to  finance  it  through  the  bank,  for  the  whole  period, 
in  one  single  transaction,  without  inconvenience  or  embar- 
rassment to  any  one  concerned. 

When  the  Buyer  Cannot  Pay  When  Due. — A  small  buyer 
should  figure  when  he  can  pay  as  does  a  manufacturer  or 
jobber,  but  if  it  occurs  that  he  cannot  pay  the  trade  accept- 
ance, the  wholesaler  would  be  in  a  position  to  favor  him 


MANUFACTURER  AND  WHOLESALER        281 

and  hold  his  friendship,  just  as  readily  as  with  an  open 
account.  As  explained  in  Chapter  VIII,  there  are  various 
simple  methods  of  carrying  the  account,  which  will  take 
care  of  the  trade  acceptance  when  not  paid  at  maturity 
and  give  the  buyer  all  the  time  that  may  be  deemed 
desirable. 

However,  this  definite  asking  for  extension  or  favors  by 
the  buyer  brings  it  specially  to  the  seller's  attention  and 
lets  him  decide  how  much  extra  time  and  cost  he  wants 
to  allow  on  the  accounts  of  slow-pay  customers,  which  will 
7iot  be  unfair  to  those  who  pay  promptly.  It  is  possible 
thus  to  make  a  deliberate  decision  whether  or  not  the 
chronically  slow-pay  man,  who  won't  arrange  terms  in 
advance,  is  a  profitable  customer,  or  if  it  is  too  great  a 
drag,  if  not  a  risk,  to  keep  him  on  the  books.  His  elimina- 
tion would  save  some  slow-pay  costs  or  losses  on  customers 
who  are  slipping  hack  in  their  business  and  who  may  not 
realize  it  themselves,  in  which  case  the  acceptance  will  tell 
them. 

"Overlooking"  Due  Dates  and  Taking  Unearned  Dis- 
counts.— Since  through  the  buyer's  acceptance  his  bank  is 
authorized  to  pay  the  amount  of  the  trade  acceptances  on 
the  due  date,  it  will  save  the  often  honest  overlooking  of 
pay-day  by  the  buyer,  which  also  means  much  to  him,  for 
prompt  pay  is  a  tonic  and  a  safeguard  to  the  business  of 
the  buyer  as  well  as  to  that  of  the  seller.  Formerly,  when 
the  buyer  remitted  less  cash  discount,  five,  ten  or  more 
days  after  the  discount  day  had  passed,  the  seller  had  the 
equally  unpleasant  choice  of  pocketing  his  loss  or  return- 
ing the  remittance,  not  knowng  whether  the  latter  would 
precipitate  trouble. 

If  the  buyer  has  "accepted"  on  receipt  of  the  trade 
acceptance,  and  thus  "paid,"  it  is  simple  to  return  the 
tardy  cash  remittance  or  the  accepted  acceptance,  previ- 
ously received,  whichever  seems  best.     If  he  has  not  signed 


282  ACCEPTANCES 

the  trade  acceptance,  it  will  simplify  matters  greatly  if, 
in  returning  the  cash  remittance,  his"  attention  is  drawn 
to  the  fact  that  on  account  of  his  not  "accepting"  within 
the  discount  period,  his  account  has  been  noted  to  be  paid 
on  net  open-account  terms.  However,  the  seller  would 
still  be  pleased  to  haA^e  him  accept  the  trade  acceptance. 
This  method  saves  the  unearned  cash  discount  and  opens 
the  way  for  the  buyer  to  "accept,"  besides  avoiding  a 
drastic  handling  of  the  matter. 

How  It  Helps  the  Bank  to  Help  the  Seller. — The  bank's 
chief  source  of  profit  lies  in  lending  its  money.  Its  daily 
problem  is  how  to  lend  all  it  safely  can  and  yet  keep 
loans  so  "liquid"  that  it  will  be  able  to  realize  on  them 
promptly  and  economically.  It  is,  therefore,  to  the  bank's 
interest  that  customers  borrow  from  it  all  they  safely  can. 
This  being  known,  the  national  banking  laws  are  such  as 
to  throw  safeguards  around  the  conditions  under  which  a 
bank  can  lend  the  cash  entrusted  to  its  handling.  This 
is  proper  for  the  bank's  protection  and  guidance,  as  well 
as  for  the  depositors. 

One  of  the  statutes  most  often  invoked,  especially  in  the 
smaller  banks  and  communities,  is  the  10  per  cent 
restriction,  which  allows  not  over  that  percentage  of  a 
bank's  capital  and  surplus  (and  not  over  30  per  cent  of 
its  capital)  to  be  loaned  on  any  individual's  or  single  firm's 
paper.  To  a  big  borrower,  no  matter  what  his  financial 
standing,  this  is  often  inconvenient  and  often  costly.  If 
he  must  seek  other  avenues  of  borrowing,  he  may  have  to 
spend  more  time  or  money  on  such  accommodations  than 
they  warrant.  Borrowers  may  have  to  pay  extras  to  brokers 
or  discount  houses  on  paper  which  is  not  easily  rehandled. 

Since  the  trade  acceptance  is  not  the  seller's  obligation, 
but  a  direct  obligation  of  the  acceptor,  the  10  per  cent 
rule  applies  only  to  the  party  accepting,  and  thus  gives 
a  borrower  a  line  of  discount  limited  only  by  the  diversi- 


MANUFACTURER  AND  WHOLESALER        283 

fication  of  the  acceptances  he  wishes  to  discount  and  the 
ability  and  desire  of  the  bank  to  accommodate  him.  This 
helps  especially  in  time  of  money  stringency,  when  the 
outside  sources  of  the  borrower  are  curtailed ;  for  a  bank, 
to  accommodate  its  customers,  can  in  turn  rediscount  with 
the  Reserve  Bank  all  the  acceptances  it  takes  from  the  bor- 
rower and  receive  cash  at  often  preferential  rates. 

The  completion  of  the  triangle,  when  the  banker  takes 
the  buyer's  trade  acceptance  from  the  seller  and  furnishes 
the  cash  with  which  the  whole  transaction  is  handled,  is 
the  valuable  consummation  of  the  plan.  The  benefits  of 
this  to  the  wholesaler  and  to  business  in  general  should  be 
shown  to  the  buyer ;  also  that  such  benefits  will  be  returned 
to  him  in  better  terms,  prices,  and  other  favors  from  the 
seller.  All  these  "finer"  points  and  details  will  gradually 
appear  to  the  buyer,  until  he,  like  his  Canadian  and  Euro- 
pean brothers,  will  as  readily  sign  the  acceptance  and  take 
care  of  it  as  he  does  to-day  the  voucher  or  check,  in  his 
accustomed  routine. 

Any  Helps  to  Business  in  General  Reflect  Benefits  to 
the  Wholesaler. — ]\Iuch  has  been  said  and  written  about 
the  benefits  to  credits,  and  finances  in  general,  which  the 
trade  acceptance  is  aimed  to  bring.  Bankers  and  econ- 
omists point  out  that  if  the  four  billion  dollars  of  "frozen" 
open-account  merchandise  credits,  owing  mostly  to  whole- 
salers, were  in  self -liquidating  paper,  such  as  trade  accept- 
ances, it  would  not  only  help  the  United  States  in  financing 
the  Government  credits,  but  it  would  help  the  bankers  to 
finance  the  legitimate  needs  of  trade,  and,  in  turn,  to  pass 
these  benefits  down  through  the  manufacturer  and  whole- 
saler to  the  retailer  and  the  ultimate  consumer. 

Since  there  seems  to  be  such  a  preponderance  of  opinion 
among  the  authorities  for  proper  acceptance  credits,  we 
will  not  take  the  space  here  to  repeat  the  arguments  given, 
but  only  emphasize  the  desirability  for  each  big  or  little 


284  ACCEPTANCES 

manufacturer  or  jobber  to  do  bis  bit  as  be  is  able,  even 
though  his  individual  firm  may  think  it  does  not  need  the 
ensuing  benefits,  to  an  equal  degree  with  others. 

Ease  and  Cost  of  Money  Affected.— It  will  be  well  for 
all  business  men  to  realize  that,  aside  from  other  angles, 
anything  that  can  create  better  commercial  paper  will 
reflect  on  the  "ease"  and  "cost"  of  money  to  all.  When 
enough  of  this  high-class  two-name  paper  has  been  created 
and  offered,  we  may  have  a  real  discount  market,  as  they 
have  in  European  countries.  Not  until  then  may  we  hope 
to  approximate  their  discount  rates,  averaging  (pre-war) 
from  214  per  cent  to  3i/4  per  cent  per  annum. 

When  the  manufacturers  and  jobbers  fully  see  that 
this  problem  (which  they  may  have  thought  of  as  concern- 
ing only  the  bankers)  is  their  problem  and  means  dollars 
in  or  out  of  their  pockets,  they  should  then  seriously  set 
about  studying  how  far  they  can  put  their  credits  on  the 
acceptance  basis,  and  in  return  reap  any  rewards  through 
their  own  business  activities  or  from  the  betterment  of 
credit  business  in  general. 


CHAPTER  XXII 

TRADE  ACCEPTANCES  AND  THE  RETAILER  * 

Trade  Acceptances  between  the  Retailer  and  His  Cus- 
tomer.— When  a  retailer  shares  to  the  fullest  extent  in  the 
benefits  of  the  Federal  Reserve  Act  and  banking  facilities 
offered  to  all  business  alike,  by  the  introduction  of  trade 
acceptances  in  his  credit  business,  it  is  believed  that  he 
can  make  his  retail  credits  nearly  as  liquid  and  efficient 
as  those  of  his  much-envied  neighbors,  the  jobber  and  the 
banker. 

The  fact  that  certain  periodicals  devoted  to  the  interest 
of  the  retailer  have  stated  that  the  manufacturers  and 
jobbers  who  demand  trade  acceptances  receive  considerable 
benefits  therefrom  has  drawn  the  retailer's  attention  to 
the  advantages  of  this  plan  to  the  seller.  In  reference  to 
that  class  of  retailers  whose  working  capital  is  insufficient 
to  discount  their  bills  for  cash  and  who  are  dependent 
upon  the  prompt  collection  from  their  customers'  charge 
accounts  to  meet  their  bills  at  maturity,  these  authorities 
have  gone  so  far  as  to  declare  that  if  those  from  whom 
the  retailers  bought  obliged  them  to  meet  trade  acceptances 
without  any  additional  time,  they  would  be  forced  to  seek 
some  new  plan  of  relief,  such  as  more  prompt  collection,  to 
enable  them  to  meet  the  acceptances  from  the  seller  on 
their  due  dates. 

Aside  from  buying  for  cash,  the  plan  of  getting  trade 

*  This  chapter  is  designed  to  be  clear  and  attractive  to  the  retailer. 
Manufacturers,  jobbers,  bankers,  and  others  endeavoring  to  extend 
the  use  of  acceptances  in  the  retail  trade  have  used  it  in  whole  or 
in  part. 

285 


286  ACCEPTANCES 

acceptances  from  the  retailer 's  customer  when  possible  may 
be  the  most  feasible  method  by  which  the  retailer  can  count 
on  collecting  his  outstanding  credit  accounts  to  meet  his 
own  obligations,  and  therefore  it  is  one  that  he  should  at 
least  seriously  consider.  If  it  will  contribute  to  quicker 
turnover  of  charge  accounts  and  focus  the  retail  merchant's 
mind  on  turning  over  all  the  goods  possible,  before  the 
acceptance  to  pay  for  them  comes  due,  it  will  have  helped 
to  solve  two  of  the  most  important  problems  bearing  on 
retail  profits.  These  problems  have  played  an  important 
part  in  the  success  of  the  chain-store  systems. 

In  any  radical  change  like  this  in  his  relations  with  his 
customers,  it  is  as  important  to  the  retailer  as  to  the 
wholesaler,  that  he  must  use  only  practical  methods  to 
accomplish  the  results.  To  change  the  methods  of  a  life- 
time, the  customer  must  be  forced  or  coaxed  to  adopt  the 
new  plan.  The  retailer  should  seek  to  find  out  what  other 
retailers  have  done  and  weigh  the  arguments  the  wholesaler 
has  used  for  inducing  him  to  pay  by  acceptance.  He  must 
be  sure  that  he  employs  a  method  that  wdll  be  a  success. 

Methods  and  Terms  Used  by  Wholesalers. — ^Wholesalers 
in  selling  to  the  retail  merchant  and  asking  him  to  sign 
acceptances,  have  used  one  of  three  methods:  (1)  given 
no  alternative  but  to  accept  to  obtain  credit;  (2)  asked  him 
to  accept,  persistently,  but  did  not  insist;  (3)  asked  him 
to  do  so  and  given  him  a  preferential,  over  payment  by 
open  account,  for  accepting. 

Through  inquiry  the  retailer  ascertains  that  it  has  been 
found  that,  in  the  wholesale  business,  if  you  are  strong 
enough  with  your  trade,  you  can  make  your  terms  cash 
or  trade  acceptance  only. 

Wholesale  business  also  shows  that,  when  you  may  lose 
trade  to  competition,  if  you  leave  no  alternative  to  cus- 
tomers but  to  sign  a  trade  acceptance,  you  must  give  them 
the  choice  and  "sell"  them  this  new  credit  plan. 


THE  RETAILER  287 

Some  wholesalers  by  patience  and  persistence  educate 
their  customers'  taste  to  the  point  of  liking  to  pay  their 
bills  promptly  and  agreeing  to  do  so  by  the  trade  accep- 
tance. 

Other  wholesalers  find  it  more  successful  and  quicker, 
if  not  cheaper,  to  induce  their  customers  to  sign  an  agree- 
ment to  pay  according  to  terms  by  dividing  with  their 
customers  the  benefits  they  themselves  receive  through  this 
system. 

The  following  plans  describe  methods  of  putting  out 
trade  acceptances  by  retail  merchants  to  their  customers, 
by  making  their  acceptance  obligatory,  by  making  it  op- 
tional, without  advantage  for  signing,  and  by  giving  cus- 
tomers a  bonus  or  preferential  discount  for  acceptance. 
All  of  these  methods  are  legal  and  practical,  and  the  choice 
of  a  plan  should  be  made  by  each  dealer  after  careful  con- 
sideration as  to  what  will  produce  results  of  a  satisfactory 
character  with  his  particular  trade. 

System  in  Effect  in  a  Middle-Western  City. — The  fol- 
lowing is  a  brief  description  of  a  system  now  in  effect  in  a 
good-sized  city  in  Illinois  by  one  who  was  active  in  the 
movement : 

The  adoption  of  the  trade  acceptance  by  a  merchant  merely 
means  that  he  will  send  a  letter  to  his  customers  at  the  end  of 
the  month  when  he  sends  out  the  invoices  for  the  month's  accounts 
and  that  he  will  attach  to  each  of  these  invoices  a  trade  accept- 
ance properly  filled  out.  In  the  letter  he  will  call  attention  to 
the  desire  of  the  United  States  Treasury  Department  and  the 
Federal  Reserve  Board  to  have  the  credit  of  America  in  the  most 
liquid  condition  possible  as  a  necessity  for  the  successful  financing 
of  the  great  war's  obligations. 

K  the  customer  returns  a  check,  the  merchant  will  charge  the 
account  off  of  his  bills  receivable  ledger,  marking  the  account 
"Paid  by  check."  If  the  customer  returns  the  trade  acceptance, 
the  merchant  will  make  a  similar  charge,  marking  the  account 
"Paid  by  trade  acceptance." 

Of  course,  when  the  trade  acceptance  is  sent  out  it  should  be 


288 


ACCEPTANCES 


fully  filled  out  by  the  merchant,  and  he  should  mark  plainly  on 
the  trade  acceptance  the  space  where  the  customer  is  expected 
to  sign.  He  should  also  attach  a  letter  or  notice  explaining  the 
trade  acceptance  to  the  customer.  It  is  necessary  for  the  mer- 
chant to  display  persistence  and  patience. 

A  retail  ^ocer  located  in  a  well-to-do  section  of  a  mid- 
Western  city  had  a  large  number  of  customers  to  whom 


I 

^ 

: 

9— 

ON_ 

Trade  Acceptance 

loi  irT    II  1  1M<->1<; 

TO_ 

i:ic°:^:'."'.%vj.r.i:'.v.^^^^^^^^ 

\ 

S       ' 

) 





— - 

....                                                                                                                                              II 

Trade  acceptances  for  Better  Business 

The  Fcdrral  Reserve  Board  has  called  aiitntion  to  the  de-.irabiliiy  of  improving  credit  com 
basis  for  the  successlul  financing  of  the  war  and  has  suggeslcd  ihc  u^c  of  Trade  Acceptanc 
asnionrd  open  book  accounts     All  Jolict  banks  have  also  requested  this 

Our  customers  who  are  not  m  position  to  remit  by  check  immediately  upon  recerpi  of  stater 
ike  advantage  o(  credit  terms  arc  requested  to  sign  the  attached  Trade  Acceptance  which  ( 
,old.     After  the  Trade   Acceptance  has  been  signed,  it  should  I 


i  upon  which  goods  ha 

d  lo  the  undersigned. 
The  w-orking  ol  the  Trade  Acceplai 
ha-.  be.n  created  in  itMrumcnt  com 
that  the  gmng  of  Trade   Acceptii 


ictl,  I 


working 


n  book  account,  encept  thai 
by  the  buyer  and  the  seller  Our  banks 
buyer  and  will  also  make  it  easier  foi 


Figure  40.    Form  of  Eetail  Trade  Acceptance  in  Use  in 
JoLiET,  Illinois 


he  sold  on  monthly  terms,  all  bills  payable  on  the  tenth  of 
month  following  purchase.  The  majority  of  his  customers 
could  be  classed  as  "good,"  but  the  usual  trouble  pre- 
vailed in  his  business — the  "good"  customers  did  not  pay 
until  they  got  ready,  sometimes  5,  10,  20  and  more  days 
after  maturity.     This  grocer  determined  to  put  a  stop  to 


THE  RETAILER  289 

this  practice  and  sent  out  a  letter  to  each  of  his  customers, 
extracts  from  which  follow: 

We  want  to  thank  you  for  your  past  patronage  and  to  assure 
you  that  in  spite  of  increased  cost  of  goods,  ti'ansportation  dif- 
ficulties, and  scarcity  of  commodities,  our  every  effort  will  be 
to  serve  you  at  the  least  cost  and  with  the  best  quality  of  gro- 
ceries obtainable.  To  do  this  to  your  satisfaction  we  are  going 
to  ask  for  your  cooperation. 

Our  relations  have  been  too  pleasant  to  be  interrupted  on 
account  of  present  conditions,  and  we  are  going  to  take  advan- 
tage of  the  facilities  offered  by  the  Federal  Reserve  system  to 
meet  just  such  emergencies  in  order  that  we  may  continue  to 
sell  you  on  our  usual  terras. 

We  are  enclosing  a  TRADE  ACCEPTANCE,  which  we  ask 
you  to  kindly  fill  in  and  sign  on  the  red  lines  across  the  face  of 
the  form. 

First,  you  enable  us  to  finance  your  purchases,  so  that  we  can 
buy  in  the  best  markets  and  at  the  lowest  prices,  giving  you  the 
advantage  of  the  saving  made  thereby,  and,  second,  you  relieve 
us  of  many  details  of  bookkeeping,  thus  enabling  us  to  devote 
our  time  and  efforts  to  improving  our  service  to  you. 

The  results  of  the  above  letter  were  that  67  trade  accept- 
ances were  sent  out  on  the  first  of  the  month.  Sixty  were 
signed  and  returned,  of  which  48  were  met  at  maturity. 

Experience  in  a  city  of  50,000  is  given  in  a  letter  from 
a  retail  dry-goods  merchant  to  another  merchant,  of  which 
extracts  follow : 

The  trade  acceptance  started  out  here  and  was  taken  up  by 
only  a  few  merchants  at  the  start,  but  we  believe  it  is  bound  to 
grow,  particularly  during  these  times  when  the  merchants  are 
giving  more  consideration  to  their  credits. 

On  the  first  of  the  month  we  sent  out  62  trade  acceptances, 
some  to  customers  long  over-due  with  their  payments,  and  we 
were  very  happily  surprised  to  collect  (from  a  total  of  $1300  as 
represented  in  these  62  certificates)  over  $700  within  the  first 
30  days.  We  do  not  aim  to  have  any  bad  accounts,  as  we  are 
very  particular  in  extending  credit,  and  while  these  people  are 
good  they  are  slow. 

More  merchants  the  following  rponth   took  up  the   trade  ac- 


290  ACCEPTANCES 

ceptanees,  and  through  our  Merchants'  Association  (a  strong, 
harmonious  association  of  the  retail  merchants)  we  are  going  to 
get  good  results,  as  every  one  strongly  favors  the  plan. 

Cards,  similar  to  the  following,  are  sent  monthly  to  cus- 
tomers as  part  of  the  foregoing  educational  campaign  on 
acceptances : 

To  our  customers: 

We  hope  you  will  make  every  effort  to  help  relieve  the  finan- 
cial strain  on  our  country  by  paying  the  enclosed  bill  immedi- 
ately, but  if  it  is  not  convenient  for  you  to  do  this  we  would 
ask  you  to  kindly  sign  and  return  the  enclosed  trade  acceptance, 
which  provides  for  our  usual  30  days'  credit  terms. 

In  order  to  comply  with  the  desire  of  the  Federal  Reserve 
Board  at  Washington,  we  are  selling  all  goods  on  the  basis  of 
cash  within  five  days  or  a  thirty-day  trade  acceptance. 

Salesmanship  to  Sell  a  New  Line. — Most  merchants 
agree  that  it  takes  a  salesmanager  to  create  a  demand  when 
one  has  something  to  sell,  even  if  it  be  goods  on  "credit," 
and  that  he  must  seek  a  market  for  it  and  make  price  or 
terms  according  to  the  law  of  supply  and  demand.  Where 
there  is  no  demand,  he  is  obliged  to  create  one  by  practical 
and  successful  methods.  Whether  it  will  be  best  to  create 
a  demand  for  the  trade  acceptance  through  a  slow  process 
of  education  or  through  more  intensive  or  spectacular 
methods  will  depend  upon  many  circumstances,  including 
how  long  the  seller  is  able  to  await  results,  and  whether 
the  trade  sought  is  of  such  a  permanent  nature  as  to  allow 
slow  methods. 

No  Demand  for  Trade  Acceptances  by  Retail  Credit 
Buyers. — A  banker  who  has  made  an  especial  study  of  the 
application  of  acceptances  in  retail  selling  says: 

The  merchant's  customers  are  perfectly  satisfied  to  retain  the 
old  book-account  system  because,  under  this  system,  they  do  not 
feel  they  have  to  pay  their  bills  until  it  is  convenient  for  them 
to  do  so. 


THE  RETAILER  291 

This  banker  goes  on  to  say : 

Local  banks  have  encouraged  this  matter  as  much  as  pos- 
sible, offering  to  handle  the  trade  acceptances  for  the  present 
without  any  charge  of  any  kind  and  also  offering  to  discount 
them  at  a  rate  of  interest  of  one-half  of  one  per  cent  lower  than 
is  charged  on  the  straight  notes  of  the  merchants. 

One  Way  to  Introduce  the  Plan. — The  action  of  the 
bankers  of  the  aforementioned  town  in  offering  the  mer- 
chants reductions  in  bank  charges  on  acceptances  to  encour- 
age them  is  a  practical  method  of  introducing  the  new 
plan  with  the  consumer.  One  of  the  highest  authorities 
in  the  credit  world  said: 

Any  advantage  obtained  through  preferential  rate  in  Federal 
Reserve  Bank  rediscount  or  otherwise  should,  at  this  time,  be 
passed  on  down  the  line  even  to  the  ultimate  consumer,  with  the 
object  in  view  of  forwarding  the  more  general  use  of  trade  ac- 
ceptance as  rapidly  as  practical. 

Some  have  found  special  terms  or  inducements  the  most 
rapid  method  of  putting  the  trade  acceptance  in  effect 
with  the  ultimate  consumer. 

Study  of  the  Human-Nature  Problem  Illuminat- 
ing.— The  retailer,  if  he  is  an  analyst,  as  many  of  them 
(consciously  or  unconsciously)  are,  figures  his  problems 
out  from  the  "human-nature  side.  "  He  finds  the  "human" 
side  is  usually  most  apparent  and  the  farthest  in  the  scale 
from  those  whose  minds  have  been  trained  to  the  highest 
business  or  most  altruistic  field  of  thought  and  action.  In 
business  dealings  the  "ultimate  consumer"  exhibits  most 
plainly  the  human-nature  side  of  business,  especially  when 
this  class  is  chiefly  composed  of  people  who  have  not  had 
a  business  education  and  thus  have  not  attained  the  ideals 
of  the  trained  business  man. 

One  of  the  most  common  forms  of  human  frailty  which 
evidences  itself  in  retail  business,   is  the  desire   of  the 


292  ACCEPTANCES 

customer  to  obtain  "bargains."  This  desire,  carried  fur- 
ther, becomes  apparent  in  the  case  of  procuring  something 
free ;  that  is,  any  form  of  getting  ' '  something  for  nothing, ' ' 
whether  it  be  a  bona  fide  gift  or  only  a  plausible  illusion. 

Even  if  we  may  wish  to  overlook  human  "failings,"  the 
shrewd  merchant  only  does  so  when  he  finds  his  trade  will 
allow  it,  or  when  he  discovers  other  methods  of  attracting 
customers  whom  he  cannot  hold  through  unadorned  mer- 
chandising methods.  To  be  practical  and  successful,  he 
must  decide  what  class  of  trade  he  desires  and  can  get  and 
hold,  and  what  are  the  simplest,  most  economical  methods 
he  can  use  to  accomplish  completely  and  permanently  the 
desired  result. 

Except  for  transient  or  a  very  limited  class  of  buyers, 
the  payment  for  purchases  in  cash  is  not  generally  sought 
for  by  either  buyer  or  seller.  A  common  saying  is  that 
"credit  is  the  life  of  trade,"  but  it  must  be  live  and  not 
dead  credit.  When  a  store  is  on  a  cash  basis  only,  it 
usually  advertises  low  prices  as  inducements  for  cash  pay- 
ment. This  is  also  true  in  the  wholesale  trade,  in  which 
special  bargains  for  cash  are  often  offered ;  or,  what  amounts 
to  the  same  thing,  terms,  offering  a  discount  for  "cash 
payment"  in  10  days  or  more  after  shipment,  are  made 
to  offset  the  more  "easy"  credit  terms. 

This  same  psychology  evidently  obtains  with  retail  cus- 
tomers, as  shown  by  the  extract  previously  quoted  from 
the  banker's  letter,  that  a  majority  prefer  to  pay  cash  or 
buy  on  prevalent  terms  and  so  consider  the  paying  of  ac- 
counts by  trade  acceptance  as  another,  less  desirable,  form 
of  paying  credit  account's. 

In  some  cases,  if  the  retail  merchant's  customers  pay  him 
sooner  than  usual  or  in  a  more  desirable  manner,  he  has 
decided  that  they  were  entitled  to  a  compensating  rate  on 
their  bills,  to  an  amount  he  could  afford.  The  merchant 
who  decides  to  give  a  preferential  rate  for  payment  by 


THE  RETAILER  293 

trade  acceptance  would  find  it  necessary  to  adopt  some 
standard  plan  which  will  be  satisfactory  and  equitable  to 
both  his  customer  and  himself,  and  be  in  accord  with  the 
discomforts  or  benefits  of  each. 

Different  View  as  to  Inducement  Discounts  in  Retail 
and  Wholesale  Trade. — The  successful  owner,  general 
manager  or  salesmanager  of  a  retail  store  never  judges 
his  customer's  viewpoint  by  other  than  the  customer's 
standard.  His  success  is  built  up  largely  upon  knowing 
what  the  people  want  or  educating  them  to  want  what 
he  has  and  then  giving  it  to  them.  The  retail  credit  man 
must  do  the  same  thing  to  succeed.  He  can  only  apply 
plans  or  rules  of  the  banker  or  the  wholesaler  when  he 
can  make  them  accord  w^ith  the  views  of  his  retail  cus- 
tomers, or  make  their  views  accord  with  his  plans.  There- 
fore, the  application  of  trade  acceptances  to  the  retail 
trade  must  be  by  the  yard-stick  of  the  retail  customer's 
mind. 

It  is  fully  evident  that  in  all  cases,  except  when  the 
buyer  must  "accept"  or  pay  cash,  the  argument  or  in- 
ducement to  use  a  trade  acceptance  must  be  such  as  to 
appear  a  sufficient  one  to  the  particular  buyer,  or  buyers, 
upon  whom  the  seller  is  dependent  for  his  custom,  in  order 
to  obtain  their  acquiescence  to  the  new  credit  terms.  A 
concrete  plan  is  outlined  in  the  following  pages  as  an  aid 
in  cases  in  which  an  inducement  is  necessary. 

Method  Based  upon  a  New  York  Department  Store 
Plan. — A  New  York  department  store  having  an  enormous 
yearly  turnover  for  cash  only  has  devised  a  ' '  preferential ' ' 
for  customers  who  might  be  considered  in  a  favored  class. 
This  class  is  somewhat  similar  to  the  one  including  a  cus- 
tomer of  a  credit  business  who  paid  by  trade  acceptance, 
instead  of  when  it  pleased  him  or  when  he  was  shamed 
into  doing  so,  or  even  was  forced  to  settle,  which  often 
happens  with  open  accounts. 


294  ACCEPTANCES 

In  the  above-mentioned  establishment  this  favored  class 
consists  of  their  "Deposit-Account"  customers,  who  keep 
money  on  deposit  with  the  firm's  banking  department,  on 
which  interest  is  paid.  Early  in  December  of  each  year 
a  check  is  sent  to  each  Deposit-Account  customer  repre- 
senting 2  per  cent  of  the  total  of  the  customer's  purchases 
(less  returned  goods)  for  the  year.  This  firm  believes  that 
this  discount  of  2  cents  on  every  dollar  of  goods  bought 
on  Deposit  Account  is  fully  justified  by  the  inducement 
it  offers  to  the  shopper  to  buy  all  goods  possible  in  their 
store  instead  of  for  cash  or  on  credit  elsewhere.  Evidently, 
from  the  number  of  such  Deposit  Accounts  and  the  pur- 
chases made  thereon,  the  customers  also  believe  the  plan 
a  desirable  one.  This  plan  applied  to  settlement  by  trade 
acceptance  is  as  follows. 

How  the  Plan  Is  Introduced. — To  each  customer  of  the 
firm  a  letter  is  addressed  similar  in  tone  to  the  one  follow- 
ing, merely  modifying  the  wording  to  suit  the  class  of 
people  who  will  receive  it  and  the  plan  of  campaign  em- 
ployed. These  letters  are  sent  in  advance  of,  or  together 
with,  the  first  trade  acceptance,  and  read  as  follows: 

Dear  Customer: 

The  Government  has  requested  that  all  business  men  settle 
their  account  by  cash  or  as  soon  as  possible  after  receipt  of 
goods.  It  has  also  suggested  that  we  ask  our  customers  to  do 
the  same. 

We  prefer  not  to  make  any  change  in  our  credit  terms,  which 
we  have  made  you  in  the  past,  as  they  have  been  entirely  sat- 
isfactory to  us  and,  we  hope,  to  you  as  well. 

As  you  are  one  of  our  esteemed  customers  to  whom  we  have 
extended  our  credit  privileges,  we  shall  continue  to  extend  them 
to  you,  as  it  is  satisfactory  for  us  to  do  when  we  get  our  credit 
sales  acknowledged  on  the  trade-acceptance  plan,  which  the 
Government  has  approved. 

This  consists  merely  of  your  counter-signing  the  trade  accept- 
ance attached  to  each  charge  statement  sent  you,  when  you  do 
not  wish  to  pay  by  cash  or  check  to  our  store  at  the  time  the 


THE  RETAILER  295 

statement  is  received.  This  receipt,  or  trade  acceptance,  will  be 
collected  on  the  same  credit  terms  as  formerly,  at  the  place  you 
may  designate,  preferably  at  your  bank. 

This  plan  is  similar  to  the  foi-mer  plan  of  paying  but  makes 
it  more  simple  for  you  and  for  us  and  is  in  accordance  with 
the  recommendations  and  desires  of  the  Government  and  bankers. 
We  will  be  glad  to  give  you  any  further  explanation  you  may 
desire. 

Thanking  you  for  your  esteemed  patronage  in  the  past,  which 
we  will  always  strive  to  merit,  we  remain. 

Respectfully  jours, 


Form  of  Trade  Acceptance  Carrying  Special  Discount. 

— When  sending  the  trade  acceptance  to  a  customer  with 
a  statement,  an  explanatory  slip  is  attached  to  the  accept- 
ance and  thereon  is  noted  that  accounts  paid  according  to 
trade-acceptance  terms  during  the  year  will  be  totaled 
up,  and  a  check  sent  to  the  customer  on  December  10th, 
amounting  to  a  certain  percentage  on  all  trade-acceptance 
purchases. 

It  has  been  found  that  this  special  cash  bonus  payment 
appeals  strongly  to  the  average  retail  buyer,  when  received 
"around  Christmas  time,"  and  that  it  is  looked  forward 
to  each  year  and  counted  on  for  special  purposes.  When 
purchases  run  into  large  amounts  or  customers  are  only 
transient,  this  is  sometimes  paid  periodically  or  deducted 
from  each  trade  acceptance.  It  has  been  found  to  be 
equally  possible  to  pay  the  premium  at  other  seasons,  as 
for  instance  at  Easter-time,  Summer  or  other  holiday  vaca- 
tion season,  or  when  payments  by  trade  acceptance  reach 
any  round  sum  designated. 

Bookkeeping  Procedure  on  Discount  Plan. — The  book- 
keeping detail  in  paying  customers  the  special  discount 
entails  merely  a  casting-up  of  the  account  of  the  customer 
at  fixed  periods  to  ascertain  the  total  payment  by  trade 
acceptance.     If  it  is  desired  not  to  keep  customers'  accounts 


296 


ACCEPTANCES 


ill 


mil 


Explanatory  Btatemant  ta  acceptor  (buyer) 
may  ba  printed  here;  eea  text  used  by  on* 
firm  as  quoted. 


S_^^ 


November  19 


Januarj  1 .19_ArTER  date.  §  j^ 
gorty  Five  et 


Retail  Cuatoner 
Hometown,  111. 


J)ec.    1,  tai 

r  TO  THE  ORDER  OF  OURSELVES 


Figure  41. 


FoBM  OF  Trade  Acceptance  Made  Out  by  Retailer 
AND  Accepted  by  Consumer 


paid  by  acceptance  separately  in  the  general  books,  a  spe- 
cial memo,  account  covering  acceptances  may  be  kept  and, 
when  the  acceptances  are  discounted  or  paid,  entry  may 
be  made  under  the  name  of  the  customer,  or  carbons  kept 
of  all  acceptances,  made  with  the  Standard  Form  (Figure 
41)  of  acceptance,  and  the  premium  figured  by  adding  up 
such  carbons  after  the  corresponding  originals  are  paid. 

Then  the  check  to  cover  the  premium,  according  to  the 
agreed  percentage  of  discount,  is  figured  and  drawn 
(usually  in  special  Christmas  style),  and  this  discount  is 
charged  to  the  discount  account  or  ''trade-acceptance  ex- 
pense," or  other  appropriate  account. 

Retail  Trade  Acceptance  Form  and  Explanation. — An 
explanatory  memo,  is  attached  to  the  acceptance  which  is 


THE  RETAILER 


297 


..Wii 


Bovembar  IQ 


Dae.    1.. 


>  THE  ORDER  OF  OURSELVES 


-4 '5/100 DOLORS 


Retal  1  Selliag  Company 


Figure  41a,    Revekse  of  Figure  41 

sent  to  the   customer,   as  shown   in   Figure   41,   worded 
similarly  to  the  following: 

Help  the  Government's  Financiaii  Plan! 
2%  TO  You! 

CHRISTMAS  CREDIT  COUPON 


Each  trade-acceptance  customer  (one  who  pays  accounts  on 
our  trade-acceptance  plan  as  outlined  by  the  Government)  will 
receive  from  us  on  December  10th  next  a  check  on  a  national 
bank  for  an  amount  equal  to  2  per  cent  on  all  his  or  her  pur- 
chases represented  by  these  coupons  and  made  since  the  last 
check  was  sent.  When  received,  such  premium  check  may  be 
cashed  at  any  bank  or  at  our  store.  If  you  desire  to  be  eligible 
for  these  benefits,  to  be  in  our  preferred  trade-acceptance  cus- 
tomer class,  please  sign  the  attached  trade  acceptance  as  indi- 


298  ACCEPTANCES 

cated  and  return  it  promptly  to  us,  unless  you  prefer  to  pay 
cash  or  remit  for  this  bill  when  received. 

Get  the  trade  acceptance  habit ;  sign  below  and  save  this  Christ- 
mas Credit  Coupon;  it  is  valuable  to  you. 

We  thank  you  for  your  esteemed  patronage  and  will  hope  to 
merit  a  continuance  of  it. 


THE   RETAIL   SELLING   CO., 

John  Jones,  President 
[or  Treasurer]. 
Important:  After  signing  trade  acceptance  below,  tear  it 
off  at  dotted  line,  and  send  it  to  us  at  once.  Save  this  coupon, 
which  bears  upon  the  reverse  side  copy  of  acceptance  you  have 
signed;  it  is  your  receipt  and  good  for  above  rebate  on  accept- 
ances signed  and  paid  by  you. 

Customer  please  sign  on  red  lines  below,  detach  here  and  re- 
turn to  us  at  once. 

Various  Modifications  for  Different  Cases. — Every 
trade,  probably  every  locality  (and  occasionally  an  indi- 
vidual dealer)  may  have  to  modify  its  standard  plan  ac- 
cording to  the  trade  customs  or  customers.  For  the  seller, 
the  first  essential  to  success  has  been  found  to  be  for  him 
to  analyze  carefully  and  put  himself  in  accord  with  his 
customers'  point  of  view  and  to  so  adjust  his  plan  of 
putting  out  the  trade  acceptance  that  it  will  attain  the' 
maximum  of  success,  not  only  at  the  start,  but  in  the  future. 

Every  customer  who  "accepts"  helps  to  influence  others 
to  do  so,  and  it  depends  upon  the  patience  and  perse- 
verance of  the  merchant  what  success  attends  his  cam- 
paign and  how  soon  he  attains  it.  That  perseverance  plays 
a  large  part  in  this  plan  is  indicated  by  the  following 
opinion  of  an  officer  of  a  bank  who  has  had  practical 
experience  in  watching  the  handling  of  retail  accounts 
with  the  trade  acceptance  in  a  town  of  50,000  inhabitants: 

After  sending  out  the  trade  acceptances  with  the  monthly  in- 
voices, it  is  necessary  for  the  merchant  to  show  considerable  per- 


THE  RETAILER  299 

sistence,  and  when  customers  pay  no  attention  to  his  request  for 
the  return  of  the  trade  acceptance,  the  merchant  must  politely 
but  persistently  insist  that  his  terms  of  credit  are  now  based 
on  trade  acceptances  and  that  it  will  be  necessary  for  the  cus- 
tomer to  "accept"  and  return  same  to  him. 

Authorities'  Attitude  as  to  Its  Advantages  to  Re- 
tailer.— Authorities  seem  to  agree  that  the  trade  accept- 
ance in  retail  credits  is  legal  and  highly  desirable  from  a 
financial  and  solid  merchandising  point  of  view;  and  no 
retailer  who  has  been  interviewed  on  the  subject  but  agrees 
that  if  he  could  get  all  his  customers  to  pay  by  cash  at 
once  or  on  a  certain  date  (or  be  obliged  to  make  arrange- 
ment with  him  for  an  extension  of  time),  his  business  would 
be  on  a  much  safer  and  more  profitable  basis.  The  men 
interviewed  say,  in  other  words,  that  the  retail  store  would 
actually  become  a  business  enterprise  instead  of  a  gamble, 
dependent  on  the  whim  or  convenience  of  the  credit  buyer. 

Under  such  circumstances  the  advocates  say  that  ''the 
merchant  could  then  expand  his  energy  and  resources  in 
improving  and  extending  his  legitimate  business  of  mer- 
chandising and  service  to  his  customer,  rather  than  being 
obliged  to  act  as  banker  to  some  who,  although  they  might 
be  fully  entitled  to  credit  on  legitimate  lines,  are  not 
entitled  to  use  the  merchant's  money  and  business  as  a 
pawn  or  juggler's  ball,  in  their  careless  or  ignorant 
handling  of  their  own  financial  affairs." 

Careful  Consumers  Welcome  Acceptance  Plan. — It  ap- 
pears that  many  careful  consumers  are  glad  to  have  the 
privilege  of  a  systematic  method  of  paying  retail  credit 
accounts,  or,  at  least,  that  these  accounts  are  brought  regu- 
larly to  their  attention  for  payment,  and  that  they  are 
allowed,  when  necessary,  to  request  a  definite  extension  of 
terms  or  of  time,  if  acceptance  can  not  be  conveniently 
met  when  due.  This  appears  to  help  the  prudent  and 
honest  ultimate  consumer  to  regulate  and  adjust  his  pur- 


300  ACCEPTANCES 

chases  to  his  needs  and  income,  and  robs  the  credit  system 
(which  is  so  essential)  of  its  many  dangers  and  discourage- 
ments. 

Status  of  Trade  Acceptance  in  Retail  Trade.— Investi- 
gation indicates  that  the  use  of  trade  acceptances  in  retail 
trade  at  the  present  time  is  very  limited.  They  are  being 
successfully  used  in  certain  localities  and  trade  in  the 
United  States  (as  they  are  in  European  countries).  There 
seems  to  be  little  question  that  if  a  retailer  carefully  chooses 
the  plan  and  procedure  best  suited  to  his  customers  and 
persistently  applies  it,  he  is  reasonably  sure  of  ultimate 
success  and  of  adequate  benefits. 

It  appears  that  by  careful  consideration  of  various  prac- 
tical plans,  most  retail  merchants  (preferably  by  groups 
of  merchants)  can  modify  and  adapt  to  their  needs  the 
trade-acceptance  procedure  as  heretofore  outlined,  and 
make  it  promptly  successful  in  their  business. 


CHAPTER  XXIII 

THE  ULTIMATE   CONSUMER^ 

The  Necessity  of  Credit  to  the  Consumer. — The  ultimate 
consumer  buys  more  and  pays  more  than  any  other  class 
of  buyer.  The  "raw  materials"  producer  buys  only 
enough  materials  and  labor  to  produce  the  unfinished  pro- 
duct ;  the  manufacturer  buys  only  the  raw  stock  and  his 
labor  to  finish  the  goods ;  the  jobber  buys  the  finished  goods 
at  wholesale;  the  retailer  buys  the  goods  at  a  still  higher 
cost.  But  the  consumer  buys  at  the  retail  price  which 
includes  the  profit  each  one  has  made  and  also  the  market- 
ing and  administration  expense  of  each  handler  of  the 
goods,  and  he,  therefore,  has  the  final  and  biggest  bill  to 
pay  by  cash  or  on  credit. 

It  is,  therefore,  easily  seen  how  important  the  purchases 
and  payments  of  the  consuming  public  must  be.  The 
power  of  their  cash  purchases  is  very  great,  but  their  pur- 
chases on  credit  are  even  more  extensive.  It  is  found 
that  the  total  purchased  on  credit  by  the  consumer  is  much 
greater  than  that  for  cash.  This  is  so  for  many  good  and 
logical  reasons,  including  the  inconvenience,  if  not  impos- 
sibility, of  carrying  ready  cash  to  cover  all  small  and  large 
purchases.  This  inconvenience  is  brought  about  by  reason 
of  most  persons  receiving  their  wages,  or  income,  period- 
ically at  certain  seasons  of  the  year  and  carrying  on  hand 
insufficient  cash   (capital)   to  always  "pay  as  they  go." 

^  This  chapter  is  designed  to  appeal  to  the  average  consumer  or 
retail  buyer  and  to  present  the  trade  acceptance  in  an  attractive 
light.  Retailers  use  it  in  whole  or  in  part  in  pamphlet  form  to 
induce  their  customers  to  use  acceptances. 

301 


302  ACCEPTANCES 

This  being  conceded,  we  look  upon  credit  as  a  great  con- 
venience and,  in  certain  cases,  as  a  necessity,  and  we  must 
consider  how  it  can  be  carried  to  the  best  advantage 
for  all. 

What  Is  Good  for  One  Is  Good  for  All. — By  those  best 
versed  in  business  facts  and  figures  it  is  conceded  that 
usually  a  trade,  community,  nation,  or  the  world  prospers 
best  when  all  are  prosperous.  Hence  we  will  take  it  for 
granted  that  the  consumer  who  has  the  standing  to  ask 
and  secure  credit  knows  and  appreciates  this  fundamental 
business  fact  and  wishes  to  help  in  any  way  possible  to 
make  successful  those  from  whom  he  asks  and  receives 
credit.  However,  the  consumer  will  also  want  to  know 
that  he  is  not  sacrificing  any  of  his  own  rights  or  benefits 
for  the  sake  of  the  one  from  whom  he  buys.  If  he  feels 
he  has  to  pay  more  for  his  goods,  or  must  accept  less 
desirable  merchandise,  or  is  not  accorded  a  fair  amount 
of  credit  or  the  necessary  (reasonable)  time  in  which  to 
pay  for  his  purchases,  he  is  well  within  his  rights  to  object 
to  any  plan  which  would  work  such  results.  We  shall 
herein  make  careful  examination  to  ascertain  whether  there 
are  any  disadvantages  to  the  credit  buyer  in  having  credit 
given  him  by  the  merchant  on  the  open-charge  account  or 
in  the  plan  of  credit  based  on  payment  by  trade  accept- 
ance. 

The  Other  Fellow's  Benefit  and  Ours. — Although  not 
always  as  interesting  as  our  own  immediate  affairs  and 
benefits,  yet  the  benefits  of  another,  when  they  tend  to 
return  to  oneself,  are  worth  careful  consideration  ^nd 
study  to  learn  how  we  may  profit  thereby.  So  it  will  be 
interesting  and  valuable  to  the  consumer  to  know  what 
benefits  accrue  to  the  merchant  who  gives  trade-acceptance 
credit  instead  of  open  charge-account  credit,  and  how  these 
benefits  result  to  the  advantage  of  the  consumer  who  buys 
on  trade-acceptance  credit. 


THE  ULTIMATE  CONSUMER  303 

Credit. — We  shall  not  start  this  discussion  of  credit  by 
giving  the  dictionary  definition  of  credit,  which  all  entitled 
to  get  it  should  know,  nor  shall  we  give  an  involved  ex- 
planation, such  as  a  banker  or  credit  man  might  do,  be- 
cause it  would  be  perfectly  proper  for  the  consumer  to 
say:  *'0h,  that  kind  of  credit  is  for  the  financier!  All  I 
ask  is  to  be  trusted  until  the  first  of  the  month  (or  longer) 
and  have  a  bill  showing  what  I  have  bought  on  credit  so  I 
can  pay  it. ' '  Very  well :  that  is  the  kind  of  credit  by  trade 
acceptance  that  we  shall  explain. 

The  principles  back  of  credit  are  very  interesting,  as 
every  one  appreciates  who  has  ever  studied  them.  They 
are  simple,  too — just  confidence  and  time,  the  principal 
element  being  confidence;  in  fact,  the  word  credit  comes 
from  the  Latin  credo,  to  believe.  So  when  a  merchant 
''gives  you  credit"  he  also  places  credence,  or  believes,  in 
you;  he  believes  that  you  will  pay  him  for  the  goods  he 
trusts  you  with.  You  also  know  that  those  who  do  not 
pay  can  get  no  more  credit ;  they  have  ruined  their  credit ; 
they  must  hereafter  pay  cash  to  those  who  know  of  their 
forfeiture  of  the  right  to  credit. 

A  Merchant  Guards  His  Credit  Carefully. — Almost  any 
business  man  acknowledges  that  his  credit  is  one  of  his 
most  valuable  assets,  which  he  guards  with  the  utmost 
jealousy  and  care.  His  credit,  like  Cesar's  wife,  must  be 
above  suspicion.  "Well,"  the  consumer  might  say,  "what 
has  this  to  do  with  my  wanting  to  buy  something  and  have 
it  charged  ? ' '  Merely  that  we  are  studying  how  the  retail 
customer  can  get  it  charged  the  most  readily  and,  at  the 
same  time,  in  a  manner  that  allows  the  merchant  charging 
it  to  give  him  a  generous  amount  of  credit,  as  well  as  a 
price  which  is  not  higher  on  account  of  giving  time. 

The  Consumer  Wants  Credit  on  as  Near  a  Cash  Basis  as 
Possible. — No  one  argues  that  it  is  better  to  "charge  it" 
than  to  pay  cash,  when  cash  payment  is  feasible  and  con- 


304  ACCEPTANCES 

venient;  "short  debts  make  long  friends"  and  cash  is  the 
shortest  plan  of  settling  accounts.  Every  consumer  knows 
that  a  bargain  sale  or  "cash  store"  invariably  features 
that  ' '  you  get  more  for  your  money ' '  on  cash  terms,  which 
is,  or  should  be,  true,  because  all  lost  motion  and  lost 
money  are  eliminated  from  the  transaction.  Therefore, 
the  wise  retail  credit  buyer  realizes  that  cash  terms  are 
usually  cheapest  for  him  and  buys  for  cash  whenever 
he  can. 

But  we  are  talking  of  credit  buying,  and  the  only  reason 
for  pointing  out  the  benefits  of  cash  buying  is  to  show  the 
advantage  of  buying  on  as  near  a  cash  plan  as  possible. 
It  is  here  that  the  benefits  by  trade-acceptance  credit  can 
be  shown.  It  may  be  asked:  "Is  trade-acceptance  credit 
considered  better  by  the  merchant  than  open-charge  ac- 
count, and  why?" 

Merchants'  Costs  and  Expenses  Affect  Consumers. — 
Every  one  realizes  that  when  a  merchant  sells  goods,  he 
must  include  in  the  price  the  cost  of  the  goods  plus  all 
his  expenses  and  losses  and  a  profit,  or  he  is  bound  to  "fail" 
as  soon  as  he  has  used  up  his  capital.  Consequently,  a  con- 
sumer realizes  that  if  a  merchant  pays  high  for  his  goods, 
or  has  high  collection  or  other  expenses  or  big  losses  on 
bad  debts,  the  consumer,  who  buys  from  him  and  pays  his 
hills  must  pay  for  all  of  these.  This  is  the  reason  for  buy- 
ing, often  at  considerable  inconvenience,  at  the  cash  stores 
which  advertise  "we  buy  and  sell  for  cash." 

Well !  here  we  are  talking  cash  when  we  started  to  talk 
credit,  but  again  ' '  there 's  a  reason. ' '  The  credit  consumer 
should  try  to  get  as  much  benefit  from  cash  buying  as 
possible.  One  big  benefit  will  be  in  buying  from  the  mer- 
chant who  himself  buys  his  goods  in  the  cheapest  market 
for  cash.  But  the  consumer  might  go  deeper  and  ask: 
' '  How  can  a  man  buy  for  cash  when  he  sells  the  goods  to 
the   consumer  on  charge  accounts  and  does  not  get  his 


THE  ULTIMATE  CONSUMER  305 

money  for  one,  two  or  more  months'  time?"  Except  by 
the  richest  stores  with  almost  unlimited  capital,  it  cannot 
be  done  on  the  old  charge  system. 

But  this  is  not  all.  Few  consumers  realize  that  they 
themselves  are  standing  a  lot  of  other  losses  through  this 
inefficient  method  of  conducting  business.  Some  jobbers 
act  on  the  theory  that  if  they  can  get  a  merchant  suffi- 
ciently in  their  debt,  they  can  charge  prices  or  furnish 
brands  of  goods  that  the  merchant  would  not  accept  if  he 
were  free  to  buy  where  he  could  do  the  best.  Therefore, 
if  a  merchant  is  handicapped  for  cash  capital  or  has  to 
ask  for  long-time  credits,  the  goods  he  sells  and  the  prices 
he  gets  for  them  may  not  be  advantageous  to  the  consumer, 
who  will  again  have  to  shoulder  the  load.  Consequently  it 
is  evident  that  the  consumer's  benefits  depend  upon  those 
of  the  merchants  from  whom  he  buys. 

How  Can  the  Consumer  Help  the  Merchant  to  Help 
Him? — But  a  consumer  might  inquire :  ' '  Am  I  expected 
to  support  the  merchant  ? ' '  and  the  answer  would  be :  "Yes, 
if  you  buy  from  him."  Another  question  might  be:  "Am 
I  expected  to  pay  him  cash,  at  great  inconvenience  to  my- 
self, so  he  can  buy  for  cash?"  And  the  answer  is,  cash 
pajrment  is  always  best  for  all  concerned,  but  when  not 
reasonably  possible,  pay  in  such  a  way  as  to  give  both 
consumer  and  merchant  what  they  need,  the  highest  grade 
of  credit.  "How^  can  this  be  done?"  Pay  by  trade  ac- 
ceptance.    Read  how. 

When  the  merchant  has  the  highest  credit,  he  can  buy 
the  best  goods  at  the  lowest  prices  by  giving  his  trade 
acceptance  to  pay  for  them,  and  his  customers  will  benefit 
accordingly.  That  is  a  good  reason  to  help  his  credit  all 
you  can.  But,  better  still,  if  the  merchant's  credit  is  high 
with  his  hanker,  he  can  borrow  money  from  him  and  pay 
ca^h  for  his  purchases  from  the  wholesaler  and  get  still 
better  terms  and  bargains  to   pass  on  to  his  customers. 


306  ACCEPTANCES 

This  condition  is  true  of  the  big  department  stores  which 
buy  for  cash  in  large  quantity. 

But  the  consumer  might  ask :  ' '  What  have  I  and  the 
trade  acceptance  to  do  with  a  merchant's  credit  with  his 
banker?"  The  answer  is  Everything!  One  of  the  chief 
reasons  why  a  bank  will  not  loan  freely  to  a  retail  merchant 
is  because  the  banker  knows  the  consumer  is  sometimes  also 
careless  and  slow  in  his  payments  and  the  merchant  is 
equally  careless  in  his  collections.  In  other  words,  if  the 
merchant  borrows  money  from  the  bank  to  buy  goods  with, 
expecting  to  sell  the  goods  and  collect  the  money  in  60  to 
90  days  and  gives  a  note  to  the  bank,  it  is  two  to  one  he 
will  not  collect  enough  money  to  pay  the  note  and  will 
have  to  ask  for  more  time.  Therefore,  the  merchant  can- 
not borrow  freely  on  his  own  note.  But  if  he  had  trade 
acceptances  from  100  of  his  good  customers,  he  could  take 
them  to  a  banker  who  knew  them  or  had  confidence  in  the 
merchant's  judgment  of  customers,  and  the  bank  would 
be  more  inclined  to  be  liberal  in  their  loans  on  such  "proved 
accounts,"  which  again  would  help  to  build  up  the  mer- 
chant's credit  and  to  increase  his  ability  to  get  cash  for 
purchases. 

So  it  finally  appears  that  if  the  merchant  could  get 
trade  acceptances  in  payment  for  the  goods  he  sends  out 
on  charge  account  to  good  customers,  he  might  be  able  to 
compete  in  prices  and  goods  with  the  big  cash  buyers. 
Now  we  have  come  to  what  the  consumer  has  been  wanting 
to  know : — 

What  Is  the  Retail  Trade  Acceptance  and  How  Does  the 
Consumer  Handle  It? — Well,  what  is  this  retail  trade  ac- 
ceptance for  paying  for  credit  sales?  It  is  simplicity  it- 
self. It  is  merely  a  receipt  or  check-like  slip  of  paper 
which  the  consumer  signs  when  buying  goods  amounting 
to  a  certain  sum  or  over,  or  if  the  purchases  are  small 
periodical  items  like  groceries,  when  the  bill  is  presented 


THE  ULTIMATE  CONSUMER  307 

monthly,  semi-monthly,  or  weekly.  By  signing  a  trade 
acceptance  he  merely  says  that  he  has  received  such  goods 
and  expects  to  pay  for  them  on  the  regular  terms,  on  the 
10th  of  the  month,  in  30  days,  or  according  to  the  terms 
agreed  upon.  The  merchant,  when  he  presents  to  his  bank 
a  number  of  these  trade-acceptance  "receipts"  from  repu- 
table people,  has  his  word  verified  that  he  has  sold  such 
goods  to  such  people  on  such  terms.  He  does  not  have 
to  argue  or  tell  a  long  story  to  the  banker,  the  trade  accept- 
ances tell  the  story  and  in  a  language  the  banker  under- 
stands :  that  is,  they  are  negotiable  evidence  of  money  owed 
to  the  merchant  by  his  customers.  The  banker  readily 
takes  such  good  acceptances  and  advances  the  money, 
knowing  he  will  be  repaid  as  the  accounts  of  the  customers 
are  paid.     Simple,  isn't  it? 

As  any  banker  or  merchant  who  understands  trade- 
acceptance  procedure  can  explain,  the  merchant  can  make 
the  acceptance,  which  the  customer  signs,  for  any  length 
of  time  satisfactory  to  him  and  within  which  the  customer 
will  be  able  to  pay  the  acceptance.  The  acceptance  may 
be  made  payable  at  the  merchant's  store,  the  customer's 
house  or  place  of  business,  or,  preferably,  at  the  customer 's 
bank.  In  the  latter  case  the  banker  can  pay  the  amount 
due  out  of  the  balance  he  has  on  hand  in  the  customer's 
bank  account,  just  as  he  would  a  check.  When  a  customer 
has  a  bank  account  (and  all  seeking  credit  should  strain 
every  effort  to  establish  themselves  as  bank  depositors), 
it  is,  of  course,  preferable  to  pay  the  acceptance  through 
the  bank;  because,  if  presented  at  the  place  of  business, 
at  home,  or  at  the  merchant's  store,  it  necessitates  having 
the  cash  there  to  meet  it.  However,  this  is  a  matter  which 
each  credit  customer  must  plan  out  according  to  his  indi- 
vidual circumstances. 

Cooperate  and  Benefit. — The  lesson  is  cooperate  and 
BENEFIT  accordingly.     Get  what  you  want  and  need  by  the 


308  ACCEPTANCES 

most  direct  and  fair  methods.  If  you  want  credit,  get  it 
by  convincing  the  merchant  that  you  will  pay  your  bills 
as  you  agree  to  do.  What  man  or  woman  seeking  to  get 
permanent  credit  can  or  wishes  to  do  less?  The  point  is 
that  the  new  business  and  world  methods  say :  "  Do  it  out 
loud ;  hit  from  the  shoulder ;  don 't  pussyfoot. ' '  When  you 
get  valuable  goods  on  credit,  acknowledge  it,  give  a  receipt 
for  them  as  a  business  man  would  do,  sign  a  trade  accept- 
ance, and  "get  all  the  benefits  that  are  coming  to  you." 


CHAPTER  XXIV 

PUTTING  THE   TRADE   ACCEPTANCE   INTO  EFFECT  THROUGH   TRADE 
ORGANIZATIONS  * 

The  Pioneers  in  Trade-Acceptance  Promulgation. — Or- 
ganization has  always  been  an  important  factor  in  success, 
but  we  have  had  in  the  World  War  a  graphic  demonstra- 
tion of  the  value,  if  not  of  the  absolute  necessity,  of  100 
•per  cent  organization  and  discipline  in  the  attainment  of 
any  important  campaign.  The  efficient  organizations  of 
the  country  are  no  exception  to  the  rule  of  business  suc- 
cess through  joint  effort.  One  of  the  most  difficult  objects 
some  of  them  have  essayed  to  attain  is  the  alteration  of 
the  credit  terms  of  the  country,  which  have  been  built  up 
and  entrenched  by  common  usage  of  two  generations  of 
business  men. 

This  big  subject  was  first  taken  up  in  1915  by  the  or- 
ganization of  men  who  had  most  to  do  with  the  credit 
usage  of  the  last  half  century.  To  the  National  Associa- 
tion of  Credit  Men,  after  promulgation  by  the  Federal 
Reserve  Board  and  banking  system,  seems  to  be  conceded 
the  first  organized  effort  to  place  the  trade  acceptance  in 
general  use  and  to  supplant  the  almost  universal  open- 
account  credit  system  of  the  country. 

The  credit  men  were  ably  assisted  by  the  bankers  of  the 
country,  who  later  came  into  the  movement  as  an  organ- 

*  This  chapter  quotes  the  actual  experience  of  many  business  asso- 
ciations whose  members  have  jointly  adopted  the  use  of  the  trade 
acceptance.  Other  organizations  may  benefit  by  their  examples  and 
opinions. 

309 


310  ACCEPTANCES 

ization  when  the  trade  acceptance  was  discussed  at  the 
Business  War  Conference  at  Atlantic  City  in  the  fall  of 
1917.  At  that  time  the  representatives  of  the  American 
Bankers'  Association,  the  Chamber  of  Commerce  of  the 
United  States,  and  the  National  Association  of  Credit  Men 
appointed  committees  who  later  organized  themselves  as 
the  American  Trade-Acceptance  Council  (later  the  Amer- 
ican Acceptance  Council),  to  explain  the  acceptance  to 
the  manufacturers,  jobbers,  merchants,  and  consumers  of 
the  entire  country. 

The  activities  of  these  organizations  together  with  the 
National  Association  of  Manufacturers,  covering  as  they 
do  the  Government,  the  manufacturers,  jobbers,  retailers, 
and  bankers,  have  already  shown  results  in  the  systematic 
publicity  given  the  subject  and  the  development  of  vari- 
ous phases  of  the  problems,  including  the  standardization 
of  bank  usages  and  charges  for  handling  the  trade  accept- 
ance through  the  banking  institutions,  as  well  as  the 
internal  mechanism  of  handling  the  acceptances  them- 
selves in  the  banks. 

Activities  of  Officials  of  Banks  and  Trade  Organiza- 
tions.— Important  aspects  of  the  plan  were  put  in  the 
hands  of  a  committee  of  bankers  working  under  the  Na- 
tional Bank  Division  of  the  American  Bankers'  Associa- 
tion, and  their  plans  have  resulted  beneficially  all  along 
the  line.  Other  sections  have  been  successful  in  other  di- 
rections. This  action  by  the  general  association  pointed 
the  way  for  action  by  the  national,  state,  and  local  associa- 
tions of  each  particular  trade  or  division  of  trade.  Many 
of  the  associations  and  their  officers  and  committees  have 
laid  before  their  members  their  findings  as  to  the  pro- 
cedure and  profit  in  the  adoption  of  the  trade  acceptance 
in  their  particular  field.  The  secretaries,  as  well  as  the 
highest  officers  of  trade  associations,  have  given  unspar- 
ingly of  their  time  and  energy  in  investigating  the  details 


TRADE  ORGANIZATIONS  311 

of  the  procedure  which  apply  to  the  needs  of  their  special 
trade  or  organization. 

Such  data  have  been  carefully  disseminated  among  the 
members  through  circulars  or  speeches  at  local  or  general 
meetings,  where  the  best  informed  speakers  on  the  sub- 
ject explained  the  procedure  of  acceptances  and  answered 
questions  propounded  by  their  hearers. 

Work  by  Associations  in  Educational  Campaign. — The 
quotations  from  speeches,  resolutions,  and  circulars  given 
hereafter  will  best  illustrate  the  earnest  purpose  of  these 
organizations  to  make  clear  to  their  members  the  results 
to  be  expected  from  this  chafige  in  credit  terms.  There 
have  been  favorable  actions,  as  well  as  instances  where 
adverse  findings  resulted,  but  an  analysis  of  the  latter 
seems  to  indicate  that  the  findings  resulted  from  a  belief 
that  trade  acceptances  could  not  be  advantageously  adapted 
to  the  terms  of  a  particular  trade  rather  than  from  a  dis- 
agreement with  the  soundness  of  the  principle  of  accept- 
ance payment. 

Most  Successful  Methods  of  Introduction  by  Organiza- 
tions.— It  has  been  found  that  where  it  is  generally  de- 
sired by  far  the  most  successful  method  of  putting  the  ac- 
ceptance into  general  use  is  to  do  so  by  resolution  and 
agreement  of  all  members  of  a  local  or  general  association. 
This  plan  is  usually  led  up  to  by  study  of  the  subject  by 
some  member  of  the  association,  who  arranges  a  complete 
plan  of  procedure  and  actively  advocates  the  same  to  all 
other  members. 

When  an  association  has  an  efficient  and  energetic  sec- 
retary or  other  executive  officer  who  studies  and  pushes 
the  matter  systematically,  favorable  results  have  ensued 
more  quickly  by  his  handling  the  subject  alone.  A  com- 
mittee sometimes  has  sufficed,  but,  as  is  well  known,  un- 
less the  chairman  is  extremely  active,  the  action  will  prob- 
ably be  slow  and  often  ineffective. 


312  ACCEPTANCES 

A  State  Stove  Association  Demonstrates  an  Efficient 
Plan. — The  Empire  State  Association  of  Stove  Manufactur- 
ers showed  100  per  cent  results  in  putting  the  trade  accept- 
ance into  use  with  its  members,  and  its  plans  should  be  of 
value  for  other  associations  who  desire  to  do  likewise. 
A  committee  was  appointed  with  full  power  to  act,  hav- 
ing an  exceptionally  efficient  chairman,  who  immediately- 
studied  the  most  practical  and  successful  methods  of  trade- 
acceptance  procedure.  He  then  passed  these  results  along 
to  the  regularly  employed  secretary  of  the  association,  who 
visited  all  members  and  discussed  the  subject  with  officers 
and  heads  of  departments  in  each  firm. 

The  trade-acceptance  committee  and  the  secretary  then 
discussed  their  particular  problems  with  an  expert  on  the 
subject  of  procedure  and  successful  methods.  From  this 
conference  terms  and  plans  were  decided  upon  and  sys- 
tematically worked  out  by  a  statistical  organization  in  a 
report  of  about  100  typewritten  pages,  including  forms, 
plans,  terms,  and  full  procedure  appropriate  to  the  needs 
and  uses  of  the  business  of  the  members.  These  complete, 
practical  plans  were  then  presented  at  a  meeting  of  the 
members  of  the  association.  A  resolution  was  prepared  by 
the  committee  and  offered  to  the  meeting,  indorsing  the 
trade-acceptance  credit  movement  and  pledging  each  mem- 
ber to  put  it  in  force,  wherever  feasible,  in  accordance 
wdth  plans  of  the  committee. 

The  meeting  authorized  the  committee  to  have  prepared 
copies  of  the  full  report  and  to  send  one  to  each  member 
firm  of  the  association  for  the  enlightenment  and  guidance 
of  the  officers,  managers,  and  employees  of  each  company, 
who  would  come  into  contact  with  or  have  to  explain  the 
trade  acceptance  and  its  effective  handling.  By  this  com- 
plete method  of  handling  100  per  cent  of  the  firms  of  the 
associations  were  enabled  to  install  the  system  without 
delay.     By  studying  the  report,  all  persons  in  each  firm 


TRADE  ORGANIZATIONS  313 

were  enabled  at  once  to  become  thoroughly  familiar  with 
the  procedure  adopted  by  their  firm,  as  well  as  that  of 
their  competitors  in  the  association.  From  the  Standard 
Forms  of  trade  acceptance  and  registers,  terms,  and  pro- 
cedure, worked  out  in  the  minutest  detail  in  the  report, 
all  members  were  enabled  to  proceed  along  a  standard 
plan  and  all  customers  who  purchased  from  any  member 
firm  had  presented  to  them  the  same  terms,  forms,  and 
procedure. 

A  Similar  Plan  Possible  for  Any  Organization. — The 
foregoing  plan  is  feasible  for  adoption  by  all  organizations, 
since  they  can  prepare  or  have  prepared  such  a  report  or 
plans  or  they  can  standardize  the  procedure  (while  apply- 
ing terms  and  detail  applicable  to  their  particular  trade 
or  locality)  by  each  member  using  the  methods  described 
in  this  volume.  It  has  been  found  desirable  to  use  a  re- 
port or  book  which  covers  all  possible  angles  and  ques- 
tions of  trade-acceptance  form  and  procedure,  rather  than 
miscellaneous  treatises  which  may  duplicate  or  omit  some 
phases  of  the  subject,  and  in  order  to  avoid  the  chance  of 
each  firm  in  the  organization  adopting  its  individual  terms, 
forms,  or  interpretations  of  procedure.  When  every  firm 
in  a  trade  or  locality  uses  similar  plans,  the  quickest  and 
most  satisfactory  results  are  obtained. 

To  illustrate  a  method  used  in  1917  by  an  influential 
manufacturers'  organization,  we  quote  the  following  let- 
ter addressed  to  all  members  by  the  national  secretary : 

Gentlemen  : 

Duty  as  well  as  self-interest  now  demands  the  prompt  and 
unanimous  adoption  by  all  industries  of  the  trade  acceptance. 

The  four  billion  dollars  estimated  capital  "frozen"  in  open 
accounts  must  be  mobilized  to  serve  as  a  credit  basis  for  war- 
loan  purposes,  thus  fighting  inflation. 

At  a  meeting  of  one  of  our  allied  organizations  held  recently, 
and  at  a  meeting  of  one  of  our  local  associations,  the  following 
year-around  terms  were  adopted  by  their  members : 


31-i  ACCEPTANCES 

Two  per  cent  cash  on  the  10th  of  the  month  following  date 
of  shipment,  or  one  per  cent  and  60  days'  time  for  trade  ac- 
ceptance dated  the  first  of  the  month  following  date  of  shipment, 
or  open  account  60  days  from  date  of  shipment. 

The  only  exception  to  these  terms  to  be  bona  fide  stock  or- 
ders. The  dating  allowable  on  stock  orders  of  furnaces  to  be 
July  1st.  The  dating  allowable  on  stock  orders  of  ranges  in 
January,  February  and  March  to  be  April  1st,  and  in  June, 
July  and  August  to  be  September  1st.  Salesmen  to  refer  re- 
quests for  dating  to  the  house. 

Trade  acceptances  to  be  sent  out  with  monthly  statements  for 
the  amount  of  the  statement  less  one  per  cent,  excepting  in  the 
case  of  dated  invoices,  when  the  trade  acceptance  is  to  be  sent 
with  the  invoice. 

The  adoption  of  thc3e  or  similar  terms  for  1918  uniformly 
throughout  the  industry  will  be  a  distinct  service  to  the  Gov- 
ernment, and  at  the  same  time  a  great  advantage  to  every  manu- 
facturer, resulting  as  it  will  in  a  reduction  in  bad  debts  and  col- 
lection costs,  and  in  substituting  for  open  accounts  a  form  of 
paper  second  only  to  actual  currency  in  its  availability  for 
financing. 

In  order  to  make  the  adoption  of  new  terms  involving  the 
successful  use  of  the  trade  acceptance  effective  January  1st,  1918, 
throughout  the  country,  it  is  strongly  recommended  that  each 
local  association  hold  an  immediate  special  meeting  for  the  pur- 
pose of  recommending  terms  for  adoption  by  their  members. 

It  must  be  apparent  to  manufacturers  that  the  adoption  of 
the  terms  is  perhaps  less  than  half  the  battle.  Putting  them 
into  effect  in  such  a  manner  as  to  achieve  as  nearly  100  per  cent 
results  as  possible,  is  the  larger  half  of  the  proposition. 

In  consideration  of  this  fact  the  Trade  Acceptance  Committee 
of  one  of  the  local  associations  is  having  a  special  report  pre- 
pared by of  New  York  City,  a  copy  of  which  will  shortly 

be  sent  to  each  of  its  members. 

It  will  be  in  two  sections.  The  first  section  will  consist  of  a 
report  on  their  national  trade-acceptance  investigation.  The  sec- 
ond section  will  consist  of  recommendations  for  our  industry, 
including  copy  for  the  printer  for  the  best  form  of  trade  ac- 
ceptance, the  best  form  for  office  records  (both  for  the  manu- 
facturer sending  out  the  trade  acceptance  and  for  the  dealer  re- 
turning the  trade  acceptance),  the  best  letters  to  salesmen  and 


TRADE  ORGANIZATIONS  315 

customers,  the  best  printed  matter  to  use,  etc.  It  will  also  in- 
clude guidance  in  educating  the  retailer  to  the  use  of  the  trade 
acceptance  in  his  own  business. 

Signed , 

National    Secretary. 

Comments  by  Officers  of  Organizations. — An  indication 
is  given  of  the  operation  of  this  cooperation  by  an  associa- 
tion in  standardizing  the  source  and  plans  of  putting  the 
trade  acceptance  in  effect  with  its  members  by  extracts 
from  letters,  which  are  quoted  for  the  information  of  other 
secretaries,  officers,  or  heads  of  committees,  who  may  be 
considering  concerted  action. 

Several  months  ago  our  Association  adopted  trade  acceptances 
which  are  proving  very  satisfactory.  However,  much  educational 
work  is  needed  with  the  smaller  retail  merchants  before  they 
will  readily  accept  the  plan.  Our  members  are  meeting  with 
encouragement  in  their  efforts  and  we  confidently  predict  that 
trade  acceptances  will  eventually  become  the  universal  form  of 
payment  by  retail  merchants. 

There  are  two  ways  in  which  a  secretary  can  get  the  subject 
before  his  members:  by  literature  and  by  addresses  at  the  as- 
sociation meetings.  The  latter  will  produce  quicker  results  be- 
cause so  many  good  pamphlets  coming  to  a  business  man's  desk 
in  printed  form  are  never  read. 

I  hear  from  day  to  day  expressions  of  appreciation  of  your 
presentation  of  this  subject  at  our  annual  meeting.  I  am  con- 
fident that  the  development  of  the  subject  as  you  have  handled 
it  is  largely  responsible  for  so  many  members  of  this  Associa- 
tion putting  the  trade  acceptance  into  use  this  year. 

So  far  as  we  know  the  various  local  secretaries  have  become 
very  much  interested  in  your  trade  accei^tance  plan. 

We  have  consulted  the  secretary  of  the  Empire  Association, 
who  informs  us  that  all  of  its  members  are  using  and  pushing 
this  matter  just  as  hard  as  they  can,  and  we  are  of  the  opinion 
that  the  good  work  is  being  furthered  by  other  Associations  in 
like  manner. 


316  ACCEPTANCES 

It  is  much  more  difiBeult  for  an  individual  manufacturer  to 
introduce  the  trade  acceptance  than  to  do  so  in  conjunction  with 
his  competitors. 

It  is  also  true  that  to  achieve  the  greatest  degree  of  success 
in  the  introduction  of  the  trade  acceptance  the  competitors  in 
question  should  follow  the  same  or  at  least  a  similar  plan. 

Furthermore,  I  am  sure  that  by  cooperative  plans,  an  associa- 
tion will  save  in  time  and  trouble  much  more  than  it  costs  them 
in  dollars  in  arriving  at  a  unifonii  method  as  well  as  working 
out  a  much  more  effective  plan  in  this  manner. 

First  National  Associations  to  Discuss  the  Subject. — 

The  following  quotation  from  Progress  in  the  Development 
of  Trade  Acceptance,  by  Beverly  D.  Harris,  Vice-Presi- 
dent of  the  National  City  Bank  of  New  York,  seems  to  be 
one  of  the  earliest  reports  of  action  on  the  trade  acceptance 
by  an  association. 

It  was  my  good  fortune  to  have  been  present  at  the  confer- 
ence of  the  Banking  and  Currency  Committee  of  the  National 
Association  of  Credit  Men,  at  the  La  Salle  Hotel  in  Chicago,  in 
January,  1916,  on  which  occasion  the  introduction  of  the  trade 
acceptance  was  the  principal  topic  on  the  program.  The  meet- 
ing was  representative  of  all  lines  of  business,  including  the  bank- 
ing interests  and  representatives  of  the  Federal  Reserve  Banks 
and  the  Federal  Reserve  Board,  those  in  attendance  represent- 
ing collectively  a  wide  range  of  experience  and  expert  knowledge 
of  the  conditions  and  problems  of  trade,  credit,  and  banking. 
I  carried  away  the  impression  that  that  occasion  was  destined  to 
be  of  great  subsequent  importance  to  the  future  of  the  trade 
acceptance  movement. 

The  following  is  an  extract  from  1917  Bulletin  of  the 
Toy  Manufacturers  of  the  United  States  of  America: 

The  following  is  a  summary  of  the  important  features  of  the 
speeches  and  discussions  of  the  trade  acceptance  at  the  annual 
meeting  of  the  Toy  Manufacturers  of  the  United  States  of 
America. 

The  introduction  of  the  trade  acceptance  in  the  toy  industry 
will  depend  largely  on  the  cooperation  of  the  members.     It  will 


TRADE  ORGANIZATIONS  317 

be  taken  up  much  more  readily  if  many  manufacturers  use  it 
than  would  be  the  case  if  only  a  few  try  it. 

Detailed  instructions  in  regard  to  the  use  of  the  trade  accept- 
ance have  been  omitted  because  this  matter  is  given  in  the  pub- 
lication by  and  members  who  are  interested  in  putting 

the  trade  acceptance  into  effect  should  secure  a  copy. 

We  quote  the  following  reports  on  activities  of  associa- 
tions covering  trade  acceptances.  The  first  extract  quoted 
is  from  a  letter  of  an  optical  association  written  in 
1917: 

It  seems  to  us  that  if  the  trade  acceptance  is  introduced  suc- 
cessfully it  will  be  done  either  by  the  action  of  the  different  mar- 
kets as  a  whole,  or  through  the  influence  of  the  various  trade 
associations.  The  acceptance  has  been  adopted  as  a  term  o£ 
sale  by  both  the  New  York  Association  of  Optical  Jobbers  and 
the  Boston  Optical  Jobbers'  Association,  with  good  results.  The 
Manufacturing  Opticians'  Association  has  highly  endorsed  the 
trade  acceptance  and  is  urging  its  use  upon  its  members,  sev- 
eral of  whom  have  already  adopted  it  in  their  business. 

The  New  York  Automobile  Accessory  Jobbers'  Association  is 
actively  urging  the  trade  acceptance  and  many  members  report 
that  the  trade  acceptance  is  gaining  a  strong  position  in  the  au- 
tomobile and  automobile  accessory  lines. 

The  Secretary  of  the  Electrical  Supply  Jobbers'  Association 
is  laying  before  the  members  of  his  association  a  complete  plan 
of  procedure  in  a  report  on  the  installation  and  operation  of  the 
trade  acceptance  with  the  electrical  trade,  and  a  number  have 
already  adopted  it  through  that  report. 

The  acceptance  has  been  in  use  by  members  of  the  California 
Electrical  Contractors'  and  Dealers'  Association,  and  results  ob- 
tained are  so  satisfaetoiy  that  its  use  is  being  urged  in  this  line 
all  over  the  country. 

The  stove  associations  early  indorsed  acceptances  and 
treated  them  prominently  in  their  meeting.  Following 
is  quoted  an  extract  from  the  address  of  the  President  of 
the  National  Association  of  Stove  Manufacturers  delivered 
at  their  annual  meeting  early  in  1917  : 


318  ACCEPTANCES 

Statisticians  and  students  of  commercial  economics  warn  us' 
against  extended  credits  and  long  terms.  This  warning  has  spe- 
cial significance  and  force  during  a  time  of  unsettled  conditions 
such  as  we  are  approaching,  and,  especially,  furnace  manufac- 
turers will  do  well  to  seriously  consider  the  necessity  for  shorter 
terms  and  stricter  adherence  to  lines  of  safety. 

The  use  of  trade  acceptances  is  becoming  more  general  and 
has  the  support  of  banking  institutions.  They  work  no  hardship 
on  the  buyer  and  are  of  advantage  to  the  seller.  They  eliminate 
much  of  the  haphazard  lines  of  least  resistance  of  credit  ex- 
tensions. 

At  their  annual  meeting  May  9,  1918,  the  following  reso- 
lution was  adopted: 

Resolved,  that  the  National  Association  of  Stove  Manufac- 
turers earnestly  endorses  the  closing  of  open  accounts  by  trade 
acceptance  on  the  part  of  producers  and  distributors  generally 
and  on  the  part  of  its  members  particularly. 

National  Association  of  Credit  Men's  Indorsement. — 
Favorable  discussion  of  trade  acceptances  was  carried  on 
at  the  annual  meeting  of  the  National  Association  of  Credit 
Men  in  Kansas  City  in  June,  1917,  and  the  Association 
passed  the  following  resolution : 

Resolved,  that  the  association  approves  most  heartily  and 
completely  the  ti'ade  acceptance  as  an  instrument  more  adaptable 
through  its  liquid  character  than  the  open  account  to  protect  and 
serve  in  emergencies,  and  offering  a  means  of  eliminating  many 
of  the  evils  which  have  arisen  through  the  rigidity  and  lack  of 
adaptability  of  the  open-account  system. 

Since  that  time  other  resolutions  have  been  passed  by 
this  body  indorsing  acceptances,  including  the  following : 

The  officers  and  directors  of  the  National  Association  of  Credit 
Men,  in  annual  meeting  assembled,  view  with  deep  interest  a 
growing  tendency  toward  the  substitution  of  trade  acceptances 
for  open  accounts  as  a  form  of  commercial  credit,  and  record 
their  belief  that  trade  acceptances  present  conveniences  and 
economies  which  should  appeal  to  the  encouragement  and  sup- 
port of  commercial  credit  granters. 


TRADE  ORGANIZATIONS  319 

Resolved,  that  the  occasion  of  the  31st  Annual  Convention  be 
taken  again  to  place  the  National  Association  of  Credit  Men 
clearly  and  emphatically  on  record  as  favoring  the  steady  and 
rapid  substitution  of  the  so-called  "trade  acceptance"  for  the 
open  account  and  to  commit  the  Association  to  earnest  efforts  to 
prevail  upon  the  members  each  to  do  his  part  in  assisting  the 
Federal  Reserve  Bank  in  building  upon  this  class  of  paper  whicli 
meets  so  precisely  the  specifications  of  the  Reserve  Act  for  re- 
discountable  credit  instruments,  and  which,  at  the  same  time, 
puts  commercial  obligations  in  a  form  definite  in  amount  and 
unquestionably  negotiable. 

American  Trade  Acceptance  Council's  Resolutions. — 

The  American  Trade  Acceptance  Council  at  its  first  meet- 
ing, through  its  Resolutions  Committee,  adopted  compre- 
hensive resolutions,  urging  business  men  of  every  type  to 
give  their  attention  to  the  value  of  the  trade  acceptance  to 
them,  and  reading,  in  part,  as  follows: 

Whereas,  first,  the  Federal  Reserve  Act  affords  a  means  un- 
der Avhich  the  banking  system  of  the  United  States  may  be  im- 
proved and  strengthened,  and  the  demands  of  commerce  and 
industry  may  be  adequately  cared  for  at  all  times,  providing 
the  banks  and  business  interests  will  so  shape  their  affairs  to 
avail  themselves  of  the  privileges  and  benefits  of  the  new  system; 

After  careful  study  and  investigation  and  mature  deliberation, 
the  United  States  Chamber  of  Commerce,  the  American  Bankers' 
Association,  and  the  National  Association  of  Credit  Men  have 
concluded  that  the  nation-wide  use  of  the  trade  acceptance  will 
be  a  means  of  strengthening  the  financial  system  and  protecting 
commerce  and  industry.  They  have  accordingly  appointed  a 
committee  from  among  their  members  known  as  the  American 
Trade  Acceptance  Council,  whose  duty  it  is  to  conduct  a  na- 
tion-wide movement  to  encourage  the  use  of  the  trade  acceptance 
by  business  people  and  bankers. 

The  Cleveland  credit  men  were  pioneers  in  acceptance 
study,  resolving  that: 

The  Committee  on  Banking  and  Currency  of  the  Cleveland 
Association  of  Credit  Men  have  decided  for  the  present,  at  least, 


320  ACCEPTANCES 

to  make  the  adoption  of  trade  acceptances  their  main  subject  of 
study  and  effort,  believing  it  offers  great  possibilities  and  use- 
fulness for  the  country  by  mobilizing  a  vast  amount  of  open 
accounts  and  making  them  a  bankable  asset. 

Action  to  aid  the  trade-acceptance  movement  was  urged 
on  the  National  Paint,  Oil  and  Varnish  Association  at  the 
opening  of  its  30th  annual  convention  in  Chicago  on  Oc- 
tober 8,  1917,  by  Howard  Elting,  President  of  the  Associa- 
tion, who  said : 

I  should  like  to  see  this  large  and  influential  body  take  some 
definite  action  on  the  question  of  trade  acceptances.  We  can 
well  afford  to  be  the  first  large  trade  organization  to  put  this 
practice  into  actual  operation  among  our  customers.  This  cus- 
tom helps  the  seller;  helps  the  buyer.  It  creates  a  better  class 
of  accounts;  insures  more  prompt  attention  to  payments  when 
due,  to  say  nothing  of  the  development  of  a  keener  sense  of 
obligation. 

At  the  convention  of  the  National  Association  of  Gar- 
ment Makers  on  December  5,  1917,  it  was  decided  that 
trade  acceptances  possessed  marked  advantages  for  the 
manufacturers  and  also  some  advantages  for  the  retailer, 
and  that  their  use  should  be  encouraged. 

In  December,  1917,  the  Toy  Manufacturers  of  the  United 
States  of  America  passed  the  following  resolution : 

Whereas :  The  Toy  Manufacturers  of  the  United  States  of 
America  in  Convention  assembled,  looking  forward  to  the  neces- 
sity of  more  liquid  and  increased  working  capital  in  the  toy 
trade,  in  conjunction  with  the  needs  of  the  Government,  have 
considered  the  merits  and  demerits  of  the  trade  acceptance,  and 

Whereas :  The  general  adoption  of  the  trade  acceptance  to 
cover  open  credits  has  many  points  of  business  advantage  to 
both  buyer  and  seller,  therefore  be  it  hereby 

Resolved:  That  we  favor  their  general  adoption  in  trade  in 
view  of  the  necessity  of  keeping  liquid  the  credits  of  the  manu- 
facturers and  retailers,  and  in  this  way  greatly  to  facilitate  the 
ability  of  the  banks  and  the  Goverament  to  adequately  finance 
the  business  of  the  country  in  addition  to  the  war  needs. 


TRADE  ORGANIZATIONS  '     321 

The  Chairman  of  the  Trade  Acceptance  Committee  of 
the  National  Wholesale  Grocers'  Association  stated  as  fol- 
lows: 

At  a  meeting  of  the  executive  committee  of  the  National  Whole- 
sale Grocers'  Association  held  in  Washington,  February,  1918, 
the  Committee  on  Trade  Acceptances  was  asked  to  frame  a  reso- 
lution expressing  the  general  attitude  of  the  wholesale  grocer, 
on  the  subject.  The  resolution  submitted  received  the  unani- 
mous indorsement  of  your  executive  committee,  as  follows: 

"Whereas,  We  appreciate  the  advantages  of  the  trade  accept- 
ance in  certain  lines  of  business  and  its  general  desirability  from 
a  banking  standpoint ;  and 

"Whereas,  The  wholesale  grocery  business  has  advanced  to 
the  point  where  it  is  conducted  on  a  short  term  basis;  and 

"Whereas,  The  adoption  of  the  trade  acceptance  in  the  gro- 
cery trade  would  have  a  tendency  to  lengthen  terms  and  increase 
credit  risks;  therefore  be  it 

"Resolved,  By  the  Executive  Committee  of  the  National  Whole- 
sale Grocers'  Association  of  the  United  States,  that  the  general 
adoption  of  the  trade  acceptance  in  the  grocery  trade,  under 
prevailing  grocery-trade  conditions,  would  really  be  a  step  back- 
ward." 

The  Raw  Silk  Trade  Council  passed  a  resolution  that 

on  and  after  July  1,  1918,  all  raw  silk  except  for  transaction 
based  upon  bankers'  letter  of  credit  or  the  drawing  of  foreign 
drafts  direct  upoil  the  buyer,  shall  be  sold,  or  contract  of  sale 
made  with  buyers,  without  any  exception  whatsoever,  upon  terms 
of  cash  settlement,  prompt  or  withm  10  days,  or  trade  acceptance, 
if  other  than  cash  terms  are  agreed  upon.  Such  trade  accept- 
ances are  to  be  given  by  the  buyer  to  the  seller  within  not  later 
than  30  days  from  date  of  invoice.  All  trade  acceptances  shall 
be  made  payable  at  a  bank,  located  preferably  at  a  free  or  dis- 
cretionai-y  point,  otherwise  the  cost  of  collection  is  to  be  charged 
to  and  paid  by  the  acceptor. 

A  highly  important  action  was  taken  on  June  8,  1918, 
at  a  meeting  of  a  committee,  appointed  on  May  4th,  of  the 
National  Association  of  Cotton  Manufacturers,  represent- 
ing   spinners,    cotton    shippers,    and   bankers.     Governor 


322  ACCEPTANCES 

Harding  of  the  Federal  Reserve  Board  was  present  at  the 
conference.  A  resolution  was  unanimously  adopted, 
recommending 

That  in  addition  to  present  facilities,  the  bankers'  acceptance 
and  the  trade  acceptance  be  used  whenever  practicable  and  as 
far  as  possible  in  financing  next  season's  cotton  crop. 

The  Lumbermen's  Association  of  Texas,  at  a  convention 
held  at  Houston,  unanimously  adopted  the  following  reso- 
lution : 

Resolved,  That  the  Lumbermen's  Association  of  Texas,  desir- 
ing to  cooperate  in  evei-j'  way  with  the  aims  of  our  Government, 
hereby  indorses  the  adoption  both  by  manufacturers  and  retail- 
ers of  the  use  of  trade  acceptances. 

The  Louisville  Hardwood  Club  members  went  on  record 
as  indorsing  the  use  of  trade  acceptances,  agreeing  that 
all  members  would  use  them  in  their  dealings.  The  St. 
Louis  Material  Dealers'  Association  sent  out  a  pamphlet 
on  the  trade  acceptance  and  a  letter  to  the  trade  giving 
the  following  terms  of  sale  as  adopted  by  the  association : 

Two  per  cent  for  cash  payment  on  or  before  the  15th  of  the 
month  following  date  of  purchase; 

If  the  2  per  cent  cash  discount  is  not  taken  advantage  of,  as 
outlined  above,  a  30-day  trade  acceptance  is  to  be  given  not  later 
than  the  10th  of  the  month  following  date  of  invoice.  This 
paper  will  carry  a  special  acceptance  discount  of  1  per  cent  if 
paid  at  maturity. 

The  Lumbermen's  Club  of  Memphis,  with  a  membership 
of  more  than  200  hardwood  lumber  manufacturers  and 
distributors,  adopted  the  trade  acceptance;  and  the  Amer- 
ican Hardware  Manufacturers'  Association  authorized  its 
executive  committee  to  draft  terms  of  sale  embodying  the 
trade  acceptance. 

The  following  resolution  was  adopted  at  a  convention  of 
the  New  York  State  Bankers'  Association,  relative  to  the 
acceptance : 


TRADE  ORGANIZATIONS  323 

Whereas:  Realizing-  the  importance  at  this  time  of  utilizing 
the  commercial  credit  of  the  country  to  the  fullest  possible  ex- 
tent and  believing  this  can  be  accomplished  very  largely  by  the 
universal  use  of  the  trade  acceptance  in  the  settlement  of  obli- 
gations arising  out  of  commercial  transactions;  therefore,  be  it 

Resolved,  That  the  New  York  State  Bankers'  Association,  in 
order  to  properly  encourage  the  use  of  the  trade  acceptance, 
recommends  that  each  member  bank  pledge  its  support  to  the 
promotion  of  the  use  of  this  instrument  in  evei-y  way  possible; 
and  be  it  further 

Resolved,  That  copies  of  these  resolutions  be  forwarded  to  each 
member  bank. 

Many  other  bankers'  associations  have  adopted  resolu- 
tions favoring  the  use  of  acceptances.  The  Executive  Com- 
mittee of  the  Savings  Bank  Section  of  the  American  Bank- 
ers' Association  adopted  the  following  resolution: 

Resolved,  That  the  Executive  Committee  of  the  Savings  Bank 
Section  urges  investments  of  savings  banks  in  bankers'  accept- 
ances and  trade  acceptances  endorsed  by  a  bank,  banking  associa- 
tion, or  trust  company,  up  to  20  per  cent  of  the  amount  of  assets 
less  available  funds  and  urges  the  passage  of  laws  pennitting 
such  investment  by  savings  banks  in  all  states  where  restrictions 
are  placed  upon  savings-bank  investments. 

A  special  committee  report  of  the  Chamber  of  Com- 
merce of  New  York  read  as  follows: 

A  new  step  of  importance  to  the  development  of  the  Federal 
Reserve  System  will  be  the  adoption  by  merchants  of  the  method 
of  settling  accounts  by  trade  acceptances. 

Your  Committee  desires  to  give  its  approval  to  the  principle 
involved  in  this  method  of  settling  accounts  between  sellers  and 
buyers.  It  believes  that  merchants  throughout  the  country  should 
be  encouraged  in  every  way  to  study  the  question  of  trade  ac- 
ceptances and  to  bring  the  matter  to  the  attention  of  their  cus- 
tomers. The  introduction  of  new  methods  of  bv;siness  of  this 
description  requires  time  and  patience  in  order  that  those  adopt- 
ing them  may  become  thoroughly  familiar  with  their  merits  and 
with  the  benefits  to  be  derived  therefrom. 


324  ACCEPTANCES 

[Signed] 
Frank  A.  Vanderlip,  President  National  City  Bank. 
Samuel  Sachs,  Goldman,  Sachs  &  Co. 
George  F.  Baker,  Vice-President  First  National  Bank. 
Albert  H.  Wiggin,  Chairman  of  the  Board,  Chase  National 
Bank. 

James  S.  Alexander,  President  National  Bank  of  Commerce. 
William  Woodward,  President  Hanover  National  Bank. 
George  B.  Corteltou,  President  Consolidated  Gas  Co. 

The  National  Association  of  Manufacturers  passed  reso- 
lutions favoring  the  use  of  trade  acceptances  on  May  23rd, 
1918.     They  read  as  follows: 

Resolved,  That  the  National  Association  of  Manufacturers  in 
convention  assembled  not  only  indorses  the  able  report  by  the 
committee  on  trade  acceptances,  but  recommends  the  wider  adop- 
tion and  wherever  possible  the  general  use  of  trade  acceptances 
by  manufacturers  throughout  the  United  States  in  substitution 
for  the  open  book  account  system. 

Indorsement  in  War  Convention  of  Credit  Men. — The 

temper  of  the  prominent  credit  men,  bankers,  and  busi- 
ness men  of  the  country  towards  the  adoption  of  the  trade 
acceptance  was  expressed  in  speeches  and  resolutions  at  a 
notable  meeting  of  the  National  Association  of  Credit  Men 
held  in  Chicago  in  June,  1918.  Resolutions,  adopted 
unanimously,  included  the  following: 

Resolved,  That  the  National  Association  of  Credit  Men  con- 
tinue to  exert  its  power  to  bring  about  a  better  understanding 
of  the  trade  acceptance  and  to  advise  so  far  as  may  be  its  use 
in  the  various  lines  of  trade  as  contemplated  in  the  Federal  Re- 
serve Act  as  interpreted  by  the  Fedei'al  Reserve  Board. 

Resolved,  That  this  Convention  give  its  cordial  approval  to 
the  officers  and  directors  of  the  association  in  joining  in  the 
action  which  resulted  in  the  fonnation  of  the  American  Trade 
Acceptance  Council,  believing  that  through  the  cooperation  of 
the  large  national  organizations,  representative  of  every  phase  of 
business,  comprised  within  the  council,  the  strongest  possible 
influence  is  being  placed  behind  the  movement  to  substitute  the 
acceptance  for  the  open  account. 


TRADE  ORGANIZATIONS  325 

The  following  resolution  was  adopted  in  the  convention 
of  June,  1919: 

Resolved,  That  the  National  Association  of  Credit  Men  hereby 
reaffirms  the  action  of  former  conventions  in  approving  the  prin- 
ciples of  the  trade  accej^tance  as  a  desirable  credit  instrument 
for  the  ordinary  commercial  transactions  of  the  nation,  believ- 
ing that  the  trade  acceptance  is  superior  to  the  open-book  ac- 
count, that  it  is  a  logical  development  of  the  Federal  Reserve 
Act  in  the  emphasis  and  dignity  it  gives  to  commercial  paper  as 
a  national  asset,  and  that  it  will  tend  to  decrease  trade  abuses, 
give  greater  liquidity  to  capital,  and  therefore,  should  be  known 
and  used  generally  in  mercantile  credits. 

Attitude  of  Associations  and  Members. — I\Iany  other 
conventions  of  credit  men  have  since  passed  resolutions 
or  adopted  plans  to  further  the  trade-acceptance  movement 
and  it  would  appear,  therefore,  that  those  associations, 
composed  of  men  who  are  trained  in  credit  and  general 
business  affairs,  have  indorsed  the  trade-acceptance  prin- 
ciples and  adopted  them  wherever  practical  in  their  own 
sphere  of  trade. 

The  success  of  the  movement  maj'  be  assured,  or  other- 
wise, according  to  the  unanimity  and  force  with  which 
the  associations  and  their  members  indorse  and  adopt,  or 
reject,  the  use  of  the  acceptance,  and  it  therefore  seems  of 
importance  that  all  those  in  control  of  any  organization 
of  business  men,  as  well  as  its  members,  should  study  and 
decide  upon  the  attitude  they  will  adopt  towards  this  move- 
ment. 

Agreement  Between  Associations  and  the  Sherman 
Law. — That  there  is  no  legal  objection  to  the  adoption  of 
standard  trade-acceptance  terms  by  an  association  seems 
to  be  answered  in  the  following  expressions  of  opinions. 
The  first  is  a  statement  made  by  a  deputy  governor  of  a 
Federal  Reserve  Bank. 

It  would  seem  to  be  perfectly  proper  for  any  manufacturer 
or  group  of  manufacturers,  in  making  their  terms,  to  give  their 


326  ACCEPTANCES 

customers  the  option  of  a  cash  discount  or  premium  for  imme- 
diate payment  or,  if  they  desire  credit,  to  restrict  them  to  giving 
a  trade  acceptance  rather  than  an  open-book  account  and  it 
would  vmdoubtedly  result  in  developing  the  use  of  trade  ac- 
ceptance, which  is  now  so  well  recognized  as  being  preferable  to 
the  open-book  account. 

The  following  is  a  statement  made  by  an  expert  in  trade- 
acceptance  law,  who  says: 

Attorneys  advise  that  the  substitution  of  trade  acceptances 
for  open  accounts  and  the  establishment  of  uniform  and  better 
terms  of  credit  where  goods  are  paid  for  with  trade  acceptances 
would,  in  their  opinion,  tend  to  promote  rather  than  restrain 
interstate  trade,  and  the  result  would  be  beneficial;  but  even 
were  the  contrary  true,  the  effect  of  such  an  organized  effort  for 
change  of  methods  would  only  have  an  indirect  bearing  upon  in- 
terstate trade  and  commerce  and  would  not,  in  any  event,  be  in 
violation  of  the  Sherman  Act. 


CHAPTER  XXV 

POINT    OF    VIEW    OF    BUYERS    WHO    HESITATE    TO    "ACCEPT"  ;    WITH 
BRIEF    ANSWERS    THERETO 

Influencing  the  Buyer  to  Use  Trade  Acceptances. — A 

good  salesman  always  seeks  to  know  the  customer 's  attitude 
of  mind  toward  his  goods  before  he  makes  his  approach. 
It  will  be  found  that  among  some  buyers  there  is  a  preju- 
dice in  favor  of  continuing  the  old  open-account  system, 
which  may  be  accounted  for  by  various  explanations.  The 
first  prejudice  is  found  to  be  a  natural  dislike  to  change, 
and  this  may  be  overcome  by  a  candid  explanation  of  the 
new  system  and,  of  course,  by  pointing  out  to  the  buyer 
wherein  he  will  be  benefited  by  the  change. 

Influence  is  often  brought  to  bear,  through  the  efforts 
of  the  salesmen  in  explaining  these  matters,  by  stating  that 
it  is  the  desire  of  the  house  to  make  this  change,  and  that 
they  will  show  all  possible  favors  including  prompt  ship- 
ment, etc.,  to  their  customers  who  cooperate,  not  only  on 
account  of  the  benefit  it  will  be  to  the  buyer  and  seller, 
buf  also  to  the  business  of  the  country  in  general. 

It  is  explained  that  this  is  especially  desirable  when  con- 
ditions of  the  country  have  been  upset  by  large  expendi- 
tures and  the  incidental  straining  of  credits,  and  that  it 
is  the  belier  of  the  Government  at  Washington,  expressed 
through  the  Federal  Reserve  Board,  and  also  that  of  the 
banks,  and  associations  of  credit  men  and  of  others  able 
to  judge  the  best  methods  of  mobilizing  the  country's 
credits  in  the  most  liquid  form,  that  through  the  adop- 

327 


328  ACCEPTANCES 

tion  of  the  acceptance  to  cover  credit  transactions,  safety 
and  absence  of  money  panics  can  be  best  assured. 

The  attention  of  the  buyer  is  directed  to  the  fact  that 
this  method  is  being  very  highly  spoken  of  and  written 
about  in  books,  magazines,  newspapers,  and  periodicals. 
One  of  the  most  influential  financial  digests  and  reports 
advises  all  merchants  as  follows :  ' '  Make  use  of  the  trade 
acceptance  as  far  as  possible." 

Stereotyped  Objections  to  the  Use  of  Trade  Accept- 
ances.— "I  don't  understand  the  plan"  is  a  frequent  argu- 
ment set  forth,  and  the  seller's  understanding  of  the  sub- 
ject and  his  ability  to  present  it  attractively  is  the  power 
which  will  either  cause  the  buyer  to  join  the  trade-accept- 
ance movement  or  make  him  stay  out.  When  it  is  the 
first  time  the  buyer  has  been  asked  to  accept,  the  pioneer 
blazing  of  the  trail  is  more  difficult,  but  this  situation  is 
becoming  less  frequent  as  additional  firms  put  out  the 
trade  acceptance  and  it  becomes  a  common  business  cus- 
tom in  this  country,  as  it  is  abroad. 

"Other  sellers  do  not  require  it"  is  another  objection. 
"When  an  earnest  effort  is  not  made  to  convert  each  buyer 
individually,  old  or  new,  an  unwilling  buyer  tells  all  com- 
petitors the  same  story.  Therefore,  to  succeed  it  has  been 
found  necessary  to  win  over  each  objector  by  patient  ef- 
fort. It  is  found  that  the  buyer  often  thinks,  if  he  does 
not  say  so,  that  he  can't  see  where  he  is  to  derive  his  bene- 
fit from  "accepting."  The  answer  to  the  query  as  to 
where  the  buyer  benefits  is  discussed  more  fully  in  other 
chapters. 

An  objection  made  to  signing  a  trade  acceptance  by 
one  who  is  unfamiliar  with  this  method  of  paying  bills 
often  is:  "I  do  not  like  to  sign  a  note."  Care  has  to  be 
taken  that  the  trade  acceptance  is  not  presented  like  a 
note  and  does  not  have  the  appearance  of  one. 

The  brief  answer  made  to  such  an  objection  is  that  it 


BUYERS  WHO  HESITATE  TO  "ACCEPT"    329 

is  evident  the  trade  acceptance  is  not  a  note  of  the  buyer, 
for  the  reason  that  he  does  not  make  it  or  sign  it ;  neither 
is  it  a  note  of  the  seller.  In  fact,  it  is  an  entirely  differ- 
ent kind  of  paper  than  either  a  note  or  a  check,  and  is 
clearly  in  the  class  of  the  time  bill  or  time  draft,  although 
it  differs  from  the  usual  form  of  sight  draft  or  * '  draft  with 
bill  of  lading  attached,",  in  that  it  is  no  reflection  on  the 
buyer's  credit,  in  fact,  rather  the  reverse,  since  it  is  the 
highest  grade  of  credit  paper.  It  cannot  be  renewed  like 
a  note,  nor  can  it  properly  pay  any  but  a  current  mer- 
chandise obligation.  It  does  not  curtail  time  like  a  sight 
draft,  but  is  purely  an  instrument  to  extend  credit  on  time. 

A  successful  method  is  to  create  the  impression  in  the 
mind  of  the  buyer,  who  is  to  accept,  that  the  trade  accept- 
ance is  merely  an  acknowledgment  by  him  that  he  has  re- 
ceived the  invoice  (if  not  the  goods)  sent  him  by  the  seller, 
and  finding  this  invoice  to  be  correct,  including  terms,  he 
accepts  and  will  pay  for  the  goods,  according  to  the  stated 
terms  at  his  bank  (which  will  pay  the  acceptance),  or  at 
his  place  of  business,  if  he  prefers  and  so  designates. 

Often  buyers  ask  "How  can  I  tell  when  I  can  pay?" 
It  is  made  clear  to  them  that  the  correct  time  to  answer 
that  question  is  when  the  purchase  is  made,  since  many 
failures  are  caused  by  lack  of  just  such  judgment  or  fore- 
sight. Also  that  every  help  and  method  to  make  more 
exact  the  buyer's  knowledge  of  what  he  will  have  to  pay 
and  when  he  should  pay  it  are  of  inestimable  value  to  him. 
Furthermore,  that  the  buyer  ca7v  judge  is  shown  by  the 
fact  that  most  business  men  pay  their  rent  or  taxes  and  in- 
surance when  due. 

It  is  explained  that  every  buyer  appreciates  that  he  must 
meet  notes  and  arranges  his  finances  accordingly.  Accept- 
ances extend  this  field  of  preconsideration  of  debts  and 
means  of  paying  them,  which  helps  the  business  education 
as  well  as  the  standing  of  the  buyer.     Sellers  take  care  to 


330  ACCEPTANCES 

make  the  buyer  feel  that  he  is  not  dealing  with  one  who 
will  exact  the  "pound  of  flesh"  if,  for  some  good  and  suf- 
ficient reason,  payment  is  not  forthcoming.  Methods  of 
helping  the  buyer  in  such  a  case  are  explained  in  other 
chapters. 

The  buyer  says,  "There  is  no  way  to  tell  when  I  shall 
get  my  money,  so  I  can't  tell  when  I  can  pay."  He  is 
made  to  understand  that  his  customer  is  a  buyer  (and 
maybe  again  a  seller)  and  that  both  he  and  his  customer 
can  exercise  the  same  foresight  used  by  those  "higher  up." 
If  they  only  realize  the  necessity  for  doing  so,  it  will  be' 
to  the  ultimate  benefit  of  all  alike.  The  buyer  can  ask 
his  customers  to  sign  trade  acceptances,  or  pay  when  their 
bills  are  due,  which  the  Government,  credit  associations, 
and  banks  recommend  to  all  as  a  business  duty. 

An  incentive  and  excuse  to  collect  more  promptly  from 
his  customers  has  been  found  of  great  advantage  to  the 
buyer.  Prompt  collections  are  the  life  of  trade  from  top 
to  bottom.  The  buyer  can  be  shown  that  this  objection  is 
a  hindrance  and  not  a  help  to  him,  and  that  it  will  be  bet- 
ter for  him  to  borrow  from  the  banks,  forehandedly,  than 
"stand  off"  the  seller. 

Importance  of  Watching  Turnover.— One  of  the  funda- 
mental reasons  of  success  of  the  houses  that  buy  for  cash, 
such  as  the  chain  stores,  is  the  quick  turnover  of  all  stock 
through  careful  pre-judgment  of  immediate  needs  and 
markets  and  the  buying  accordingly.  It  is  demonstrated 
to  the  buyer  that  if  he  can  improve  his  turnover  through 
equally  careful  buying  (induced  by  the  knowledge  that 
acceptances  must  be  paid  when  due,  rather  than  when  con- 
venient), he  is  employing  one  of  the  most  successful  meth- 
ods of  such  cash  houses  in  his  business  and  should  benefit 
equally  with  them  through  its  use. 

Other  Queries  of  the  Buyer. — Sometimes  a  buyer  will 
ask:    "Why  does  your  firm  not  desire  to  give  me  credit? 


BUYERS  WHO  HESITATE  TO  "ACCEPT"    331 

Is  my  standing  not  satisfactory  to  you?"  This  is  easily 
explained  by  drawing  to  his  attention  that  you  are  giving 
him  credit  for  a  definite  length  of  time  and  that  on  re- 
ceipt of  the  accepted  trade  acceptance  a  receipt  for  charge 
will  be  sent  him  in  full :  payment  being  made  on  the  trade 
acceptance  at  its  maturity,  according  to  the  terms  of  the 
order. 

Also,  payment  by  trade  acceptance  puts  a  good  buyer 
on  a  basis  nearest  to  that  of  a  buyer  for  cash,  and  sellers 
seek  the  trade  of  such  a  buyer  because  it  is  nearly  as  "good 
as  cash."  When  the  sellers  sign  and  send  him  the  ac- 
ceptance, they  thus  assume  an  equal  obligation  for  his 
acceptance,  which  they  would  never  do  unless  they  felt 
the  utmost  certainty  in  his  standing  and  integrity. 

The  acceptor's  "Buymanship"  says:  "You  give  me  a 
good  discount  for  paying  cash ;  why  is  it  not  worth  some- 
thing to  you  to  have  me  sign  the  trade  acceptance?"  The 
answer  is  up  to  each  firm,  how  to  treat  the  matter,  as 
elaborated  in  Chapter  XII.  The  buyer  who  is  a  "con- 
scientious objector"  should  get  several  more  chances  on 
the  open-account  plan,  and,  in  the  meantime,  the  seller 
may  work  all  the  fine  points,  through  the  sales  department 
and  salesmen,  to  win  him  over  to  the  trade  acceptance. 

If  the  buyer  is  afraid  of  shortages,  or  that  goods  will 
not  be  up  to  sample,  and  the  seller  is  not  sufficiently  en- 
trenched with  him  so  that  he  will  take  the  seller's  word 
as  to  quality  and  quantity  of  shipment  (should  the  goods 
not  arrive  before  he  must  sign  up  and  return  the  trade 
acceptances),  it  will  help  get  the  acceptance  to  give  him 
every  possible  assurance  of  the  seller's  ability  and  desire 
to  give  him  satisfaction  in  every  particular. 

The  buyer  is  often  advised  to  hold  the  first  trade  accept- 
ance (if  shipment  is  to  be  made  at  once)  until  the  arrival 
and  checking  of  the  goods.  However,  it  can  be  explained 
in  a  nice  way  that  this  is  rather  a  hardship,  since  trade  ac- 


332  ACCEPTANCES 

ceptances  are  planned  to  be  accepted  and  returned  on  re- 
ceipt, and  that  the  buyer  is  guaranteed  fair  dealings.  He 
may  not  persist  then  in  refusing  to  sign  and  return  the 
acceptance  promptly. 

The  buyer  may  have  the  idea  that  accepting  a  trade 
acceptance  will  "hurt  him  at  the  bank"  and  act  as  an  ad- 
verse reflection  on  his  credit.  He  can  be  shown  that  ex- 
actly the  opposite  would  be  the  result  in  the  well  posted 
banker's  mind,  because  he  considers  acceptances  of  the 
highest  grade  of  financial  instrument  with  which  to  set- 
tle credit  accounts.  Indeed,  the  highest  banking  author- 
ity— the  Federal  Reserve  Board  at  Washington — thinks 
so  highly  of  trade  acceptances  that  it  has  authorized  the 
Reserve  Banks  to  use  them  as  a  basis  for  the  countrj^'s 
currency.  As  stated,  every  buyer  is  usually  a  seller  and 
looks  at  both  sides  and  conditions.  When  he  buys,  he 
wants  to  be  sure  he  can  sell,  and,  incidentally,  get  his 
money  before  he  pays  for  his  credit  bills,  for  that  is  his 
reason  for  not  paying  cash. 

When  Should  the  Buyer  Pay? — It  is  a  fundamental 
principle  on  which  the  trade  acceptance  is  founded,  that 
(at  least  theoretically),  the  time  given  by  the  seller  to 
the  buyer  is  for  the  understood  purpose  of  allowing  the 
buyer  to  turn  over  the  goods  and  thus  obtain  the  cash, 
through  regular  trade  channels,  with  which  to  pay  the 
trade  acceptance  and  reimburse  the  seller  for  his  goods. 
The  seller,  therefore,  in  average  transactions,  should  give 
enough  time  on  his  trade  acceptance  to  allow  the  buyer 
practically  to  carry  out  this  plan  for  payment.  But  it 
should  also  be  tacitly  understood  that  in  return  for  this 
privilege  the  buyer  will  be  ready  to  meet  the  obligation 
when  due. 

When  the  buyer,  for  some  adequate  reason,  needs  to 
ask  the  seller  for  extra  time  on  the  purchase,  he  should  do 
so  when  he  buys,  instead  of  arbitrarily  taking  it  after  the 


BUYERS  WHO  HESITATE  TO  "ACCEPT"    333 

account  becomes  due.  If  he  is  willing  to  set  an  exact 
date  when  he  will  pay  by  trade  acceptance,  he  affords  the 
seller  a  convenient  method  of  carrying  the  account,  through 
discounting  it  at  the  bank,  if  he  desires  to  do  so.  The  fair- 
minded  seller  possibly  would  rather  grant  special  terms 
under  some  conditions  than  have  the  buyer  not  furnish 
him  with  bankable  paper  to  help  finance  the  credit,  and 
later  be  obliged  to  give  the  extra  time  to  the  buyer. 

By  explanation  the  buyer  may  be  made  to  appreciate 
fully  that  credit  is  a  very  delicate  commodity  and  the 
easiest  way  to  preserve  it  is  to  meet  obligations  when  due, 
and  that  arrangements  beforehand,  not  excuses  after- 
wards, are  by  long  odds  the  best  for  the  buyer,  as  well  as 
for  the  seller. 

Buyer  Doesn't  Like  "Drafts."— The  buyer  "doesn't 
accept  drafts."  Small  business  men  and  those  who  are 
not  used  to  exact  business  transactions  seem  to  have  a 
strong  objection  to  accepting  a  shipment  with  "draft  at- 
tached to  bill  of  lading"  or  to  be  drawn  upon  by  those  to 
whom  they  owe  money.  This  is  probably  brought  about 
by  the  fact  that  the  old  "sight  drafts"  have  been,  in  the 
past,  sometimes  put  to  usages  which  might  reflect  upon 
the  debtor's  credit  standing,  such  as  drawing  a  sight  draft 
for  overdue  accounts,  etc. 

One  seller  advises  any  buyer  who  makes  the  above  ob- 
jection that  the  trade  acceptance  is  "neither  a  dun  nor 
a  draft."  This  is  true  in  the  generally  accepted  under- 
standing of  the  term  "draft"  on  the  buyer  for  immediate 
payment.  A  bank  never  sees  the  trade  acceptance  unless 
the  buyer  has  voluntarily  "accepted"  for  a  certain  day 
in  the  future,  according  to  understood  terms,  and  has  vol- 
untarily mailed  it  back  to  the  seller.  It,  therefore,  should 
not  be  confounded  by  the  buyer  with  the  customary 
"draft,"  for,  if  the  Federal  Reserve  Board  in  defining  it 
had  classed  it  with  the  usual  draft  of  commerce,  it  would 


334  ACCEPTANCES 

have  been  called  by  that  name  and  not  especially  desig- 
nated in  attributes  and  benefits  in  a  class  by  itself  as  the 
King  of  Commercial  Papers. 

Final  Attitude  of  Buyer. — Therefore,  in  summing  up 
the  objections  of  the  buyer  to  signing  trade  acceptances, 
none  seem  to  be  so  fundamental  that  they  cannot  be  fairly 
met.  There  are  two  attitudes  that  a  buyer  may  take  and 
which  only  the  policy  of  the  firm  putting  out  the  accept- 
ances can  meet  or  overcome.  These  are  that  the  buyer 
flatly  refuses  to  accept  unless  forced  to  do  so,  or  unless  he 
is  given  an  inducement  in  extra  time  or  discount  which 
will  persuade  him  to  accept.  The  arguments  for  and 
against  meeting  this  attitude  are  discussed  at  length  in 
other  chapters  of  this  volume,  as  they  involve  a  question 
of  policy  of  the  house  putting  out  the  acceptance. 


CHAPTER  XXVI 

MAKING  CLEAR  THE   ADVANTAGES   OP   TRADE   ACCEPTANCES   TO   THE 

BUYER* 

Attractions  of  the  Trade  Acceptance. — The  name 
"trade  acceptance"  seems  to  have  a  great  attrac- 
tion for  the  business  world.  Since  it  was  adopted  by  the 
Federal  Reserve  Board  in  its  ruling  of  July,  1915,  it  has 
seemed  to  appeal  to  many  business  men  of  the  country, 
from  the  banker,  manufacturer,  jobber,  retailer,  and  even 
to  the  consumer. 

It  is  well  that  this  new  credit  help  has  such  a  demo- 
cratic and  attractive  name,  because  it  is,  above  all  things, 
a  democratic  instrument  of  business,  since  it  will,  in  its 
field,  benefit  all  alike  and  may  be  used  by  all  alike.  Large 
businesses  and  small  equally  find  it  a  convenience.  It  has 
been  introduced  in  the  *'Nut  House"  of  Seattle  (which 
started  by  roasting  peanuts  in  a  pan  over  the  kitchen 
fire)  as  well  as  in  the  great  electrical  manufacturing  com- 
pany of  "New  York  and  everywhere."  The  same  demo- 
cratic methods  and  standard  forms  to  put  the  acceptance  in 
use  with  its  customers  are  possible,  no  matter  what  the 
character  or  size  of  a  business  which  uses  credit. 

But  happier  still  for  the  assured  success  of  the  trade  ac- 
ceptance is,  not  only  its  general  adoption  for  "big"  and 
"little"  business,  but  its  "acceptance"  by  great  and  small 
houses  alike.     In  talking  with  various  companies  which 

'  The  substance  of  this  chapter  has  been  found  to  furnish  a  firm 
wishing  to  interest  its  customers  in  settlement  by  trade  acceptance 
with  sufficient  explanatory  material  presented  in  a  manner  to  appeal 
to  the  average  buyer. 

335 


336  ACCEPTANCES 

employ  this  plan,  they  all  tell,  with  equal  pride,  that  they 
have  had  single  trade  acceptances  from  their  customers 
ranging  from  $3.50  to  $18,000.  This  means  much  for  this 
business  movement,  for  it  puts  the  small  credit  buyer  upon 
e-sactly  the  same  basis  as  to  terms  as  the  greatest  credit 
buyer. 

Indeed,  the  indications  are  that  the  careful  credit  buyer 
who  pays  his  bills  promptly  with  trade  acceptances  is  fa- 
vorably compared  with  the  cash  buyer  and  shares  in  the 
general  benefits  that  all  business  will  receive  when  credit 
business  is  put  on  a  liquid  and  nearly  "as  good  as  cash" 
basis,  which  desirable  goal  the  trade  acceptance  greatly 
helps  to  accomplish.  It  is  becoming  apparent  that  the 
credit  buyer  who  refuses  to  accept  places  himself  in  a 
class  one  step  lower  than  the  firm  that  "accepts." 

The  trade  acceptance,  although  a  "wonder  worker"  in 
business,  should  not  be  expected  to  be  a  "miracle  worker." 
It  can  do  wonders  for  the  credit  business  and  for  the 
credit  buyer  and  seller.  But  there  are  some  benefits  it 
cannot  bestow.  It  cannot  make  the  "bad"  account 
' '  good, ' '  though  it  can  make  all  good  accounts  approximate 
cash  in  the  bank.  This  great  metamorphosis  of  the  bil- 
lions of  dollars  of  "frozen"  merchandise  credits  of  the 
United  States  will  put  both  credit  buyers  and  sellers  in  a 
position  that  should  redound  to  their  benefit  as  no  one 
other  single  reform  in  a  bad  situation  has  done  during 
many  decades. 

Credit  buyers  should  talk  the  trade  acceptance ;  use  the 
trade  acceptance ;  and  accept  the  trade  acceptance.  He  has 
come  to  stay,  this  kindly  big  brother  in  the  credit  family, 
and  you  will  get  most  benefit  from  his  help  by  at  once  tak- 
ing him  by  the  hand  and  welcoming  him  to  a  full  fellow- 
ship in  American  business. 

How  to  Know  This  Business  Booster. — How  can  the 
business  man  recognize  this  latest  arrival  in  the  credit 


ADVANTAGES  TO  THE  BUYER  337 

household?  What  are  its  earmarks  and  what  are  some 
of  its  characteristics? 

In  the  case  of  the  trade  acceptance  ''clothes  don't  make 
the  man,"  for  you  will  find  the  trade  acceptance  coming 
to  you  in  many  varying  dresses  and  fonns.  Some  signs 
you  can't  mistake  and  the  first  of  these  will  be  its  "name- 
plate" — alwaj^s  there — "Trade  Acceptance."  Another 
will  be  the  wording,  somewhere  in  its  body,  "The  obliga- 
tion of  the  acceptor  (buyer)  hereof  arises  out  of  the  pur- 
chase of  goods  from  the  drawer  (seller)."  "By  that  you 
shall  know  it,"  for  this  wording  alone,  suggested  by  the 
Federal  Reserve  Board,  stamps  it  for  what  it  is  and  must 
be — the  highest  grade  of  commercial  paper  arising  from 
the  current  buying  and  selling  of  merchandise  on  credit. 

It  is  so  highly  regarded  by  the  Federal  Reserve  Board 
that  the  circular  defining  it  says:  "It  is  a  special  class 
of  paper  for  which  the  Board  will  authorize  a  somewhat 
lower  rate  of  discount  than  for  other  commercial  paper." 
The  law  goes  even  further,  and  allows  banks  to  loan  on 
trade  acceptances  almost  any  amount  that  the  credit  of 
the  borrower  warrants.  The  Reserve  Banks  may  issue 
Government  currency  based  upon  the  trade  acceptance. 

No  other  method  of  handling  credit  transactions  has 
received  such  support  and  consideration;  and  this  will  al- 
ways distinguish  it  from  the  payment  of  bills  by  the  much 
abused  and  shunned  "single-name  note"  and  "sight 
draft,"  which  can  be  used  all  the  way  from  the  payment 
of  an  overdue  account  to  the  borrowing  of  money  for  any 
purpose  from  fixed  capital  to  pay  salaries,  or  even  for 
purposes  almost  wholly  foreign  to  business'  proper  sphere. 

That  is  the  great  advantage  of  having  the  trade  accept- 
ance in  a  class  by  itself  and  in  such  a  high  class  that  it 
can  never  be  confounded  with  its  sometimes  "shady," 
credit-paying  relations,  by  either  banker,  manufacturer, 
jobber,  or  merchant. 


338  ACCEPTANCES 

It  is  a  first  cousin  to  the  check,  but  so  far  above  it  in 
the  business  world  that  it  looks  with  tolerance  on  its  more 
generally  known  relation.  In  Canada  and  Europe  the 
check  is  so  out  of  fashion  for  paying  up  credits  that  the 
big  houses  there  hardly  receive  one  a  month  for  such  a 
purpose. 

What  This  "Only  Complete  Credit  Instrument"  Laoks 
Like. — Look  at  the  Standard  Forms  of  trade  acceptance, 
shown  in  Chapter  II,  and  the  explanation  attached  to  it 
and  you  will  see  its  simplicity  and  understand  its  many 
uses.  Why  use  several  papers  and  operations  when  one 
will  do  the  same  work  better  and  cheaper? 

The  Standard  Form  trade  acceptance  is  a  complete  in- 
strument for  a  credit  transaction  from  the  seller  to  the 
buyer.  From  the  time  the  receipt  of  the  invoice  is  ac- 
knowledged by  the  buyer's  signature  on  the  acceptance 
when  accepting,  and  while  it  passes  through  the  seller  and 
his  bank  and  the  buyer's  bank  and  until  it  is  paid  by  the 
latter,  the  buyer  has  a  complete  receipt  for  payment  cov- 
ering the  specific  charges  noted  on  the  invoice.  This  ac- 
knowledgment, bearing  the  legal,  official  signature  of  the 
seller  and  the  notation  of  the  banks  that  it  has  been  paid 
in  due  form,  constitutes  the  most  complete  acknowledg- 
ment of  payment  that  the  buyer  can  receive.  The  buyer 
may  also  have  in  his  possession  at  all  times  a  Standard 
Form  carbon  copy  duplicate  of  the  original  acceptance, 
in  case  he  requires  it  for  reference  or  record  of  the  details 
of  the  transaction  for  which  he  has  paid  by  the  acceptance. 

When  it  becomes  apparent  to  the  buyer  that  he  has  be- 
fore him  in  the  duplicate  the  date  or  number  of  invoices 
settled  for;  due  date  when  the  trade  acceptance  will  be 
presented  to  his  bank,  which  will  pay  the  amount  of  it 
on  the  buyer's  "accepting"  signature  (without  bother- 
ing the  buyer  any  more  than  it  would  on  his  check)  ;  the 
net  amount   (less  discounts,  deductions  for  freight,  etc., 


ADVANTAGES  TO  THE  BUYER  339 

all  figured  off  for  him)  ;  and  his  record  of  the  name  of  his 
bank  where  payable,  it  begins  to  be  plain  to  him  that,  since 
by  the  simple  signing  of  his  name  and  designation  of 
"place  of  payment,"  he  can  accomplish  all  this  and  have 
a  record  thereof,  he  had  better  get  the  "acceptance  habit" 
without  delay. 

The  Times  Urge  Short  Cuts. — While  the  "boys"  were 
away  and  the  "girls"  were  doubly  busy,  it  behooved  us 
to  take  advantage  of  every  short  cut  or  improvement  in 
detail  and  method  of  business  operation  for  present  as 
well  as  future  advantage.  It  would  now  seem  shortsighted 
to  turn  back  the  hands  of  the  clock  of  progress. 

There  is  no  doubt  that  the  trade  acceptance  will  prove 
a  useful  short  cut  to  the  buyer  as  well  as  to  the  seller, 
and  a  buyer  will  be  gratified  to  know  that  the  methods 
of  the  house  he  deals  with  are  up-to-date  and  economical, 
for  the  simple  and  selfish  reason  that  he  can  get  the  best 
prices  and  service  from  the  seller  only  if  the  latter  em- 
ploys every  efficient  means  to  cut  the  cost  of  production 
and  handling.  The  moral  is  that  the  buyer  should  deal 
with  the  seller  who  employs  trade  acceptances. 

Are  the  Old  Credit  Customs  "Good  Enough"?— The 
American  business  man  should  remember  that  he  is  now 
or  will  soon  be  in  the  class  of  the  world  business  man. 
Our  isolation  is  crumbling  away^,  and  we  must  think  and 
use  world  methods  to  succeed. 

England  does  safely  five  times  as  much  credit  business 
as  the  United  States  of  America  on  an  equal  amount  of 
invested  capital  (as  stated  by  a  Federal  Reserve  Bank  of- 
ficer) .  What  can  the  reason  be  ?  Since  it  has  nothing  to 
do  with  money,  it  must  be  that  her  credit  system  is  five 
times  as  effective  as  ours.  Is  not  that  worth  looking  into  ? 
From  careful  analysis  it  appears  that  this  is  largely  due 
to  the  system  of  "acceptance"  credits  in  use  in  England 
for  many  years. 


340  ACCEPTANCES 

Will  America  long  be  a  "trailer"? 

No  business  man  should  cling  to  the  ' '  old  system ' '  when 
there  has  been  clearly  demonstrated  to  him  a  better  one 
which  he  can  easily  adopt. 

What  the  Credit  Men's  Association  Says. — Besides  the 
bankers,  we  have  a  class  of  men,  close  students  of  credit, 
who  are  doing  highly  effective  work  to  bring  the  buyer  and 
seller  closer  together.  These  are  the  credit  men  who,  to 
a  man,  indorse  the  use  of  the  trade  acceptance  by  both 
buyer  and  seller,  because  it  furnishes,  without  loss  to  either 
party,  a  superior  instrument  to  settle  credits.  It  will  also 
allow  a  legitimate  extension  of  credits  to  a  considerable  de- 
gree, which  expansion  is  fully  warranted  by  the  safety  and 
economy  with  which  business  is  done  in  foreign  countries 
and  on  a  much  greater  ratio  of  credit  to  investment. 

Helps  the  Smaller  Merchant  Most. — Although  the  larger 
buyers  seem  to  have  considered  most  actively  the  advan- 
tages of  the  trade-acceptance  plan,  it  is  probable  that  the 
smaller  buyer  is  the  one  who  should  benefit  to  the  great- 
est degree.  When  a  seller  knows  he  can  get  payment  from 
the  small  buyer  at  once  in  the  form  of  an  instrument 
which,  under  proper  conditions,  the  banks  will  "take  for 
cash,"  he  certainly  can  no  longer  justify  his  desire  to  un- 
duly favor  the  big  buyer  who  can  discount  his  bills,  no 
matter  what  the  size. 

Don't  misunderstand;  large  and  small  merchants  should 
pay  cash  and  get  their  discount  at  all  convenient  oppor- 
tunities, but,  the  trade  acceptance  being  simply  a  credit 
instrument,  it  is  fortunate  that  on  necessary  credit  pur- 
chases it  will  tend  to  equalize  the  desire  of  the  seller  to 
make  credit  sales  with  his  desire  to  make  cash  sales. 

Every  buyer  should  let  the  seller  know  he  "accepts," 
in  order  to  get  on  this  "preferred"  list  over  the  old-fash- 
ioned buyer  who  is  too  obtuse  to  learn,  or  is  so  fixed  in  the 
"slow-pay"  class  that  he  will  not  get  out  of  it,  no  mat- 


ADVANTAGES  TO  THE  BUYER  341 

ter  how  well  lie  knows  that  the  mercantile  agencies  and 
credit  and  ledger-exchange  bureaus  have  him  listed  as 
"slow  pay"  or  "will  not  accept,"  and  hence  not  in  the 
class  to  whom  the  most  desirable  bargains  will  be  offered. 

Pick  Your  Class  and  Get  All  Benefits. — ^When  you  de- 
cide to  "accept,"  and  the  opportunity  will  come  to  you  as 
surely  and  without  question  as  one  age  follows  another, 
"do  it  out  loud."  Let  the  sellers  know  you  are  in  the 
"gilt-edge  credit  class"  and  want  all  the  benefits  they  can 
give  you  in  return.  A  business  man  spoke  of  a  new  class 
as  having  expert  "buymanship"  in  contradistinction  to 
salesmanship.  He  said  both  buyer  and  seller  must  be  ex- 
perts, and  the  buyer  who  overlooks  the  benefits  to  be  de- 
rived from  paying  by  trade  acceptance  is  not  in  the  ad- 
vanced class  on  "buymanship." 

You  ask  the  seller  for  credit  and  would  be  disappointed 
and  even  angry  if  it  were  not  freely  given  you.  Suppose 
the  seller  asks  you  for  credit,  will  you  take  what  you  will 
not  give  ?  Ninety-five  per  cent  "  No  " !  The  average  busi- 
ness man  is  fair  and  will  give  as  well  as  take,  when  it  is 
put  squarely  up  to  hm.  The  day  of  the  "over-clever"  or 
' '  sharp ' '  business  man  is  passing.  Such  principles  as  ' '  one 
price  to  all"  and  "Satisfaction  or  your  money  back"  are 
signs  of  the  times,  are  solid  foundations  to  build  upon,  and 
are  growing  in  use. 

Suppose  a  buyer  (or,  for  that  matter,  100  buyers  acting 
separately,  but  whose  effect  would  be  as  a  unit)  wants  to 
buy  a  big  order  from  a  seller  who  has  not  the  goods  and 
who  hesitates  or  finds  it  unwise  to  put  cash  into  their  pro- 
duction and  put  them  out  to  the  buyer  on  "time."  But 
now  suppose  that  the  cash  buyer  says  to  the  seller :  "  I  '11 
give  you  spot  cash  on  delivery  and  accept  the  goods  now, 
subject  to  delivery,  as  per  specification."  This  would  en- 
able the  seller  to  go  ahead  and  buy,  or  make  the  goods, 
knowing  he  had  a  market  and  cash  waiting  for  them  on 


342  ACCEPTANCES 

delivery.  As  you  know,  that  is  what  many  big  cash  buy- 
ers do;  but  credit  buyers  have  not  the  same  opportunity 
to  '  *  put  it  up  to  the  seller. ' ' 

How  Can  the  Credit  Buyer  Practically  Give  the  Seller 
"Cash  on  Delivery"?— The  responsible  credit  buyer  has 
merely  to  realize  that  the  same  opportunity  is  open  to  him 
as  to  the  cash  buyer,  if  he  offers  the  trade  acceptance  to 
the  seller,  who  can  then  go  ahead  feeling  sure  of  getting 
the  cash  from  his  bank  instead  of  asking  the  buyer  for  it. 
The  beauty  of  the  trade  acceptance  is  that  it  allows  the 
bank  to  be  banker,  instead  of  forcing  the  seller  to  act  as 
the  buyer's  banker;  it  puts  you  in  the  preferred  class  of 
buyers,  and  yet  does  not  oblige  you  to  pay  for  the  goods 
one  day  before  the  regular  terms  on  "open  account."  All' 
who  "accept"  can  get  into  the  "preferred"  class  of  buy- 
ers.    Where  do  you  stand  ? 

Why  Pay  for  Money  Differently  Than  for  Merchan- 
dise?— A  Western  manufacturer  said  to  a  customer  of  his: 
"Did  you  ever  go  to  your  banker  and  say,  'Send  me  up 
$5,000  in  cash  and  charge  it  to  me  on  open  account'?" 

The  customer  laughed  and  said,  "  No ;  I  'm  not  as  green 
as  that.  I'd  sign  and  give  him  my  check,  or  my  note; 
any  one  would  know  that  much. ' ' 

Yet  you  would  say  to  the  manufacturer  or  jobber  what 
you  would  not  say  to  the  banker,  and  you  would  not  do 
for  either  of  them  what  you  do  as  a  matter  of  course  for 
the  banker.     Why?     "It's  the  custom,"  you  say. 

"It's  the  Custom."— Ah,  that's  it!  It's  so  the  world 
over,  and  in  almost  all  matters  of  life  that  "we  do  as  oth- 
ers do,"  and  if  we  were  doing  business  in  Europe  or  in 
our  neighboring  country,  the  Dominion  of  Canada,  we 
would  as  a  matter  of  course  "accept"  (90  per  cent  of  all 
merchants  there  do,  or  give  a  note)  for  our  purchases  as 
readily  as  we  would  give  an  acknowledgment  to  our  banker 
in  exchange  for  cash. 


ADVANTAGES  TO  THE  BUYER  343 

There  is  no  shadow  of  doubt  that  in  the  comparatively- 
near  future  American  buyers  will  be  expected,  as  a  mat- 
ter of  custom,  to  ''accept."  What  buyer  wants  to  be  left 
behind  in  the  procession  and  be  forced,  at  last,  to  join  with 
those  who  are  giving  and  getting  benefits  from  which  his 
backwardness  would  exclude  him?  When  you  get  the 
trade  acceptance  habit  you  will  find  ways  to  pass  it  on. 
You  will  get  acceptances  yourself  from  your  customers, 
or  will  devise  means  to  handle  and  keep  their  credits  to  you 
in  the  "liquid"  and  up-to-date  class. 

Big  Movements  Bring  Benefits  to  All. — Last,  but  not 
least,  it  is  easily  proved  that  every  general  forward  move- 
ment for  economy  and  effectiveness  helps  all  along  the  line, 
and  it  is,  therefore,  an  uncontrovertible  fact  that  the  bene- 
fits to  credit  business  by  the  general  adoption  of  trade  ac- 
ceptances in  American  business  will  not  only  help  the  Gov- 
ernment in  its  financing,  but  the  financing  of  business  in 
general,  every  penny  of  which  returns  to  the  source,  in 
one  way  or  another,  through  benefits  to  the  buyer. 


INDEX  TO  RULINGS  AND  OPINIONS  OF  COUNSEL 
OF  THE  FEDERAL  RESERVE  BOARD 

References  are  to  ruling  or  opinion  7i(umhers  in  Chapters 
XVIII  and  XIX 

Acceptance  Corporation,  Rate  on  Paper  on   167 

Acceptance  of  Drafts  Drawn  for  the  Purpose  of  Furnish- 
ing Dollar  Exchange 76a 

Acceptances  Defined,  Trade   61 

Acceptance,  Form   of   Trade    170 

Acceptance  House  or  Broker,  Acceptance  Given  by 70 

Acceptances,  Trade  177 

Acceptances,    Trade    36 

Acceptances,  Where  Payable 63 

Acceptance  Where  Payable,  Trade  63 

Accepted  by  Drawee,  Must  Be 35 

Accommodation,  Bankers  Acceptances  AVithout  Documents  as  110 

Accounts,  Rediscount  of  the  Assignment  of  Open    84 

Accounts    of    Foreign    Purchasers,    Bankers'    Acceptances 

Against    Open    181 

Actually  Existing  Value,  Bills  Drawn  Against 96 

Actually    Existing   Values,    Trade   Acceptances    as   Bills   of 

Exchange  Drawn   Against    122 

Additional    Collateral    Security    11 

Administration  Grain  Corporation,  Acceptance  of  Drafts  of 

Food     124 

Advances  (in  Cotton  for  Export   47 

Advertising,  Trade  Acceptances  for 59 

Advertising  Space,  Trade  Acceptances  Based  on   95 

Agent,  Bankers'  Acceptances  Drawn  Against   Shipment  of 

Goods  from  a  Corporation  to  Its  65 

Agricultural  Implements,  Paper  Covering  Sale  of 171 

Agricultural  Products  or  Implements    89 

Agricultural  Purpose — Note  for  Purchase  Price  Commodi- 
ties Used  for   155 

344 


INDEX  TO  RULINGS  AND  OPINIONS  345 

Allied  Purchasing  Commission    161 

Allied  Purchasing  Commissions,  Drafts  Drawn  to  Finance 

Sale  of  Goods  to    66 

Allied  Purchasing  Commission,  Revenue  Stamps  on  Drafts 

Drawn  to  Finance   Sales  of  Goods  to    174 

American  Manufacturer  for  the  PurjDose  of  Financing  the 
Purchase  of  Goods  from  a  Foreign  Seller,  Acceptance 

of  Drafts  Drawn  by  an   196 

Assignment  of  Open  Accounts,  Rediscount  of  the 84 

Assurances,  Banks  May  Ask  21 

Attorney's  Fees  or  Collection   Charges,  Bills  Payable  with  115 

Authority  to  Accejit    7 

Bankers'   Accei^tances   Secured   by   Documentary   Draft   on 

Foreign  Buj'er   199 

Bankers'  Acceptances  Without  Documents  as  Accommoda- 
tions      110 

Bank's   Own  Acceptances,   Purchase  of    54 

Before  90  Days  After  Sight,  Drafts  Drawn  on  or   67 

Before  Certain  Date,  Drafts  Payable  on  or 99 

Before    Eligible,   Notes   on    or    42 

Before  It  Has  Been  Signed  by  the  Drawer,  Negotiability 

of  a  Bill  of  Exchange  Accepted    133 

Before  Maturity,  Trade  Acceptances  Providing  for  Discount 

if  Paid  at  Certain  Time    119 

Bill  of  Exchange  AecejDted  Before  It  Has  Been  Signed  by 

the  Drawer,  Negotiability  of  a   133 

Bills,  Domicile  134 

Bills  of  Exchange,  Ten  Per  Cent  Limitation  Does  Not  Ap- 
ply to    77 

Bill   of   Lading,    Drafts    135 

Bills   of  Lading,   Renewal   of  Drafts  Drawn   bj'   the   Pur- 
chaser of  Goods  and  Secured  at  the  Time  of  Original 

Acceptance  by  Warehouse  Receipt  or 129 

Bill  of  Sale,  Banker's  Acceptance  Secured  by   93 

Bond,  Acceptance  of  Drafts  Against  Sugar  in   163 

Broker,  Acceptance  Given  by  Acceptance  House  or 70 

Building  Operations,  Trade  Acceptances  Covering   186 

Bullion,   Bankers'   Acceptances   Against    55 

Business  Paper  for  a  Member  State  Bank,  Rediscount  of 

Commercial  or   132 

Businese  Paper  and  Section  5,200  Revised  Statutes   50 

Canned  Goods  as  Security,  Warehouse  Receipts  for    166 


MH  ACCEPTANCES 

Cattle,  Chattel  Mortgages  on 158 

Cattle,  Dealers'  Mercantile  Paper,  Notes  of  Mule  and   ...       9 

Cattle  as  Readily  Marketable  Commodity    ,  154 

Cattle,  Horses  and  Mules,  Live  Stock  Includes  Beef   3 

Cattle,  a  Readily  Marketable  Commodity    28 

Cattle  for  Breeding,  Grazing  or  Fattening  as  Security 52 

Cattle  Eligible,  Notes  for  Dairy   33 

Cattle,  Limitations  of  Loans  on   2 

Cattle  Mortgages  LTnnecessai-y   5 

Cattle   Notes,   Drafts    Secured   by    li? 

Certain  Date,  Drafts  Payable  on  or  Before   99 

Charges,  Bills  Payable  with,  Not  Negotiable  Exchange  and 

Collection    146 

Charges  for  Collection  of  Notes  and  Acceptances  200 

Chattel  Mortgages  on  Cattle 158 

Chattel   Mortgage,   Paper   Secured   by    151 

Coin,  Bills  Drawn  Against    56 

Collateral    Bankers'    Acceptances — When    Drawn    Against 

Exports    53 

Collateral   Security,  Additional    11 

Collection  Charges,  Bills  Payable  With  Attorney's  Fees  or . .  115 
Collection  Charges,  Bills  Payable  with,  Exchange  and  Not 

Negotiable 146 

Collection  of  Notes  and  Acceptances,  Charges  for 200 

Commercial  or  Business  Paper  for  a  Member  State  Bank, 

Re-discount  of  132 

Commercial  Paper  for  Any  One  Bank,  No  Limit  on  Re- 
discount of   45 

Commercial    Paper    for    Financing    Development    or    Con- 
struction         201 

Commodity  Paper  Includes  Paper  of  Mei'chants  and  Others    13 
Commodities  Used  for  Agricultural  Purpose — -Note  for  Pur- 
chase   Price    155 

Condition,  Rediscount  of  Drafts  Payable  on  80 

Conditional  Sales  as  the  Basis  of  Trade  Acceptances   ....   191 
Construction,    Commercial    Paper    for    Financing    Develop- 
ment or  201 

Contract  for  Sale  and  Delivery  at  a  Remote  Period,  Future 

Delivery  Warehouse  Acceptances  Covering  Goods  Under  130 

Contract  Not   Fulfilled    23 

Conveyance  of  Title,  Drafts  with  Documents  Attached    . .  108 
Corporations,  Drafts  Drawn  on  Sales  106 


INDEX  TO  RULINGS  AND  OPINIONS         347 

Correspondents — "When  a  Direct   Liability,  Acceptances  by  111 

Cotton  Factor,  Eligibility  of  Drafts  Drawn  by  a 197 

Cotton   Factors'   Paper    192 

Cotton  for  Export,  Advances  on    47 

Credit  Companies,  Notes  of  Finance  or 149 

Credits,  Eligibility  of  Drafts  Drawn  Under 176 

Current  Rates,  Check  Payable  in  Exchange  at   87 

Custodian  of  Wool  as  Warehouse  Receipt,  Receipt  of  ....  169 

Date,  Drafts  Payable  on  or  Before  Certain   99 

Dealei-s'  Mercantile  Paper,  Notes  of  Mule  and  Cattle 9 

Demand  Notes   145 

Demand,  Notice  and  Protest*  Waiver  of   82 

Demand  Notice  and  Protest,  Indorsement  on  Waiver  of   .  .  49 

Demand  Paper  Not  Eligible  for  Rediscount   139 

Demanded  Sight,  When  to  be  Presented,  Bills  94 

Development  or  Construction,  Commercial  Paper  for  Financ- 
ing      201 

Differential  as  to  Acceptances   57 

Direct  Liability,   Acceptances  by   Correspondents — When   a  111 
Discount  for  Its  Member  Banks,  What  a  Federal  Reserve 

Bank   May    •. 193 

Discount  if  Paid   at  Certain   Time  before  Maturity,  Trade 

Acceptances   Providing   for    119 

Discount  if  Paid  at  Maturity,  Trade  Acceptance  Providing 

for     • 109 

Discount,  Method  of  Computing 136 

Discount  of  Acceptances  Based  on  the  Importation  or  Ex- 
portation of  Goods  78 

District,    Discount    of    Acceptances    Indorsed    by    Member 

Banks  Located  in  Another   79 

Documentary   Draft   on    Foreign    Buyer,    Bankers'    Accept- 
ances Secured  by  199 

Documents  Attached,  Acceptances  Covering  Domestic  Ship- 
ment of  Goods   127 

Documents  Attached — Conveyance  of  Title,  Drafts  with    .  108 

Documents  Attached — Definition,  Drafts  with   103 

Documents   Held   by  Bank,   Shipping    175 

Documents,    Releasing    168 

Dollar  Exchange  Acceptances,   Bankers'    101 

Dollar  Exchange,  Acceptance  of  Drafts  Drawn  for  the  Pur- 
pose of  Furnishing   76A 

Dollar  Exchange,  Draft  Drawn  for  Purpose  of  Creating   .  173 


348  ACCEPTANCES 

Domestic   Acceptances    41 

Domestic  Acceptances,   Eligibility  of,  Bankers'   100 

Domestic   Acceptances — Security   and   Limitations    180 

Domestic  Sale  of  the  Same  Character  and  Class  of  Goods, 
Acceptances   by   Member  Banks    of   Drafts   Drawn   by 

Dealers  Engaged  in  the  Export  and 157 

Domestic    Shipments    of    Goods    Documents    Attached,   Ac- 
ceptances Covering   127 

Domicile  Bills ". 134 

Draft  on  Foreign  Buyer,  Bankei's'  Acceptances  Secured  by 

Documentary    199 

Drafts  Drawn  for  the  Purpose  of  Furnishing  Dollar  Ex- 
change, Acceptance  of  202 

Drawee,  Bills  Payable  to  the  Order  of  the  107 

Drawee,  Must  be  Accepted  by   35 

Eligible  for  Rediscount,  Demand  Paper  Not   139 

Eligible,  Notes  for  Fai-m   Tools    25 

Eligible,   Notes   for  Fertilizer    4 

Eligible,    Notes    "on    or    Before"    42 

Eligible  Paper  Secured  by  Real  Estate  Mortgage   142 

Eligibility   of.   Bankers'    Domestic    Acceptances    100 

Eligibility  of  Trade  Accei^tances  for  Rediscount 71 

Eligibility,  Federal   Reserve  Banks  Determine    14 

Eligibility  of  Drafts  Drawn  Under  Credits   176 

Eligibility  of  Drafts  Drawn  by  a  Cotton  Factor   197 

Elsewhere  Than  in  the  United  States,  Bills  Payable   164 

Elsewhere  Than  Paid  at  Federal  Reserve,  Discount  of  Ac- 
ceptances     165 

Evidence  from  State  Member  Banks   15 

Exceptions  to  Section  5200    40 

Excess  of  Ten  Per  Cent,  Acceptances  in   179 

Excess  of  Ten  Per  Cent,  Section  13,  Acceptances  in 178 

Exchange  Charges  on  Member  Bank's  Own  Acceptance  . .  195 

Exchange  at  Cun-ent  Rates,  Check  Payable  in   87 

Exchange  and   Collection  Charges,  Bills  Payable  with.  Not 

Negotiable   146 

Existing  Value,  Bills  Drawn  Against  Actually    96 

Existing  Values,  Trade  Acceptances  as  Bills  of   Exchange 

Drawn    Against   Actually    122 

Export  Acceptances  Defined,  Bankers'    112 

Export  of  Goods,  Acceptance  by  Member  Banks  of  Drafts 

Drawn  in  Transactions  involving  162 


INDEX  TO  RULINGS  AND  OPINIONS         349 

Export  and  Domestic  Sale  of  the  Same  Character  and  Class 
of   Goods,   Acceptances    by    Member   Banks    of   Drafts 

Drawn  by  Dealers  Engaged  in  the   157 

Exportation  of  Goods,  Discount  of  Acceptances  Based  on  the 

Importation  or 78 

Exports  Defined,  Acceptances — 62 

Extension  of  Time,   Trade  Acceptance  Providing  for   ....  118 

Face  Value,  Rediscounts  Are  for 39 

Factors'   Paper,   Cotton    192 

Faith  a  Test,  Good  20 

Farm   Tools   Eligible,   Notes   for    25 

Farmers  for   Commodities  Used  in  Farming,   Notes  of    . .  152 
Federal  Reserve  Bank  May  Discount  for  Its  Member  Banks, 

What  a    193 

Fertilizer  Eligible,  Notes  for 4 

Finance  or  Credit  Companies,  Notes  of   149 

Finance  Companies  Ineligible,  Paper  of   6 

Financing  Development  or  Construction,  Commercial  Paper 

for    201 

Financing  the  Purchase  of  Goods  from  a  Foreign  Seller, 
Acceptance  of  Drafts  Drawn  by  an  American  Manu- 
facturer for  the  Purpose  of   196 

Finance  Sales  to  the  United  States  Government,  Drafts  to  105 

Financing  Original  Transaction,  New  Drafts    19 

Fix    Interest    Rate    of    Member    Bank,    Government    Does 

Not    51 

Foreign  Buyer,  Bankers'  Acceptances  Secured  by  Docu- 
mentary Draft  on   199 

Foreign  Countries,  Bills  Drawn  in   30 

Foreign    Purchasers,    Bankers'    Acceptances    Against    Open 

Accounts   of    181 

Foreign  Seller,  Acceptance  of  Drafts  Drawn  by  an  American 
Manufacturer  for  the  Purpose  of  Financing  the  Pur- 
chase of  Goods  from  a 196 

Foreign    Trade   Acceptance    16 

Foreign  Warehouse  Receipts,  Acceptances  of  Drafts  Drawn 

Secured  by   128 

Form  of  Trade  Acceptance 170 

Form  of.  Draft   72 

Form  Statement 24 

Fulfilled,  Contract  Not  23 

Future  Date,  Sight  Drafts  Accepted  Payable  at  a  187 


350  ACCEPTANCES 

Future   Delivery   Warehouse    Acceptances   Covering   Goods 
Under   Contract   for   Sale  and   Delivery   at   a  Remote 

Period    130 

Future  Importations,  Bankers'  Acceptances  Drawn  Against     64 

Gas  Sold  by  Distributing  Company  160 

Good   Faith   a  Test    20 

Goods    Involved    18 

Government  Does  Not  Fix  Interest  Rate  of  Member  Bank    51 
Government  Obligations,  Notes  and  Bills  Drawn  for  Trad- 
ing  in    140 

Identification  of  Specific  Goods   17 

Implements,  Agricultural  Products  or   89 

Implements,  Paper  Covering  Sale  of  Agricultural  171 

Importations,  Bankers'  Acceptances  Drawn  Against  Future    64 
Importation  or  Exportation  of  Goods,  Discount  of  Accept- 
ances Based  on  the  78 

Importation  or  Exportation  of  Goods,  Drafts  Growing  out 

of  Transaction  Involving  the 125 

Importation  or  Exportation  of  Goods,  Transactions  Involv- 
ing the  81 

Individuals,  Loans  Not  Made  Directly  to 38 

Indorsement  of  Acceptances    116 

Indorsement  on  Bill  of  Exchange   141 

Indorsement  of  Negotiable  Paper  91 

Indorsement  Without  Recourse   114 

Ineligible,   Non-member  Trust  Company  Acceptances    ....     27 

Ineligible,  Paper  of  Finance  Companies  6 

Insolvent  Bank,  Rediscount  to  a  Reopened   29 

Inspection  of  Goods  Covered  by  Bill  of  Lading  Drafts   . .   126 

Installation,  Trade  Acceptance  Against  Costs  of 75 

Installment   Plan,    Trade   Acceptances   in   Connection    with 

Sales   on    159 

Insurance  Premium,  Trade  Acceptance  Against   74 

Interest,  Calculation  of 43 

Interest   on,   Drafts    97 

Interest  for  Rediscount  Transactions,  Basis  for  Figuring  . .  137 
Interest  Rate  of  Member  Bank,  Government  Does  Not  Fix    51 

Liability  Notes  and  Bills  Rediscounted   120 

Limit  of  Acceptances  to  Be  Taken  46 

Limit   on   Rediscount  of  Commercial  Paper  for  Any   One 

Bank,  No 45 

Limit  on  Rediscounts  of  Commercial  or  Business  Paper  ....     85 


INDEX  TO  RULINGS  AND  OPINIONS  351 

Limit  of  Ten  Per  Cent  to  One  Maker  or  Indorser 37 

Limitation  of  Loans  on  Cattle  2 

Limitation  of  Section  13,  Security  Covering  Acceptances  in 

Excess  of  Ten  Per  Cent   183 

Limitation  Upon  the  Aggregate  Rediscounts  of  the  Paper  of 

One  Borrower  Made  for  Different  Member  Banks   ....  131 
Limitation  Does  Not  Apply  to  Bills  of  Exchange,  Ten  Per 

Cent    ". 44 

Limitations,   Domestic    Acceptances — Security   and    180 

Limitations  Imposed  By  Section  13  of  Act 60 

Limitations  on  the  Power  to  Rediscount  for  Member  State 

Banks  194 

Limitations  Under  Section  5200  R.  S 73 

Live  Stock  Includes  Beef  Cattle,  Horses,  and  Mules   3 

Live-Stock  Paper 150 

Lumber  Goods  Security,  Crossties  and   10 

Marketable  Staples,  Definition  of  Readily  188 

Maturity,    Trade    Acceptance    Providing    for    Discount    if 

Paid  at    109 

Member  Bank  Acceptances,  Non 92 

Member  Bank  Acceptances   86 

Member  Banks'  Acceptances,  Status  of   102 

Member  Bank,  Government  Does  Not  Fix  Interest  Rate  of  .  51 
Member  Banks  Located   in   Another  District,   Discount   of 

Acceptances  Indorsed  by 79 

Member  Banks   of  Drafts  Drawn  by  Dealers   Engaged  in 
the  Export  and  Domestic  Sale  of  the  Same  Character  and 

Class  of  Goods,  Acceptances  by   157 

Member  Banks   of   Drafts   Drawn   in    Transactions   Involv- 
ing Export  of  Goods,  Acceptances  by 162 

Member  Banks,  What  a  Federal  Reserve  Bank  May  Dis- 
count for  Its   193 

Member  State  Banks,  Limitations  on  the  Power  to  Redis- 
count  for    194 

Members,  Acceptance  of  Drafts  by  State  Bank   172 

Mercantile  Firms  Can  Not  Discount  with  Fedei'al  Reserve 

Banks  32 

Mercantile  Paper,  Notes  of  Mule  and  Cattle  Dealers   ....  9 

Mortgage,  Eligible  Paper  Secured  by  Real  Estate 142 

Mortgage,  Paper  Secured  by  Chattel  151 

Mortgage  on  Cattle,   Chattel    158 

Mortgages  Unnecessary,  Cattle    5 


352  ACCEPTANCES 

Negotiable  Exchange  and  Collection  Charges,  Bills  Payable 

with,   Not    14g 

Negotiability  of  Bills  of  Exchange 83 

Negotiability  of  a  Bill  of  Exchange  Accepted  Before  it  Has 

Been  Signed  by  the  Drawer   133 

Negotiability  of  Bills  of  Exchange  and  Acceptances,  Con- 
ditions Attached  to  and  Affecting 77 

New  Drafts  Financing  Original  Transaction    19 

Nonmember  Trust  Company  Acceptances  Ineligible 27 

Nonmember  Bank  Acceptances 86 

Obligations,   Notes   and  Bills   Drawn   for   Trading  in   Gov- 
ernment      14Q 

"On  or  Before"  Eligible,  Notes  42 

On  or  Before  90  Days  after  Sight,  Drafts  Drawn 67 

One  Bank,  No  Limit  on  Rediscount  of  Commercial  Paper 

for   Any    45 

One  Maker  or  Indorser,  Limit  of  Ten  Per  Cent  to 37 

Open  Accounts  of  Foreign  Purchasers,  Bankers'  Acceptances 

Against    181 

Open  Accounts,  Rediscount  of  the  Assignment  of 84 

Order  of  the  Drawee,  Bills  Payable  to  the   107 

Original  Acceptances  by  Warehouse  Receipt  or  Bills  of  Lad- 
ing,   Renewal   of   Drafts   Drawn   by   the   Purchaser   of 

Goods  and  Secured  at  the  time  of  129 

Original  Transaction,  New  Drafts  Financing    19 

Own  Acceptance,   Exchange  Charges  on  Member  Banks    . .   195 

Participation   Certificate,   Rediscount  of    147 

Pay  a  Draft,  Refusal  to   1 

Payable,   Acceptances,  Where    98 

Payable  at  a  Future  Date,  Sight  Drafts  Accepted   187 

Payable,  Trade  Acceptance  Where  63 

Presented,  Bills,  Demanded  Sight,  When  to  Be   94 

Presentment  of  Bills  for  Acceptance  90 

Protest,  Indorsement  on  Waiver  of  Demand  Notice  and    . .     49 

Protest,   Waiver   of  Demand   Notice  and    49 

Public-Service   Corporation   Paper    148 

Qualified  Acceptances  88 

Railroad   Supplies,   Rediscount   of  Draft  for    121 

Rate  of  Member  Bank,  Government  Does  Not  Fix  Interest     51 

Rate  on  Paper  on  Acceptance  Corporation   167 

Readily  Marketable  Commodity,  Cattle  a   28,  154 

Readily  Marketable  Staples,  Definition  of    188 


INDEX  TO  RULINGS  AND  OPINIONS         353 

Real  Estate  Mortgage,  Eligible  Paper  Secured  by 142 

Recourse,   Indorsement  Without    114 

Rediscount   for   Member   State   Banks,   Limitations   on   the 

Power   to    194 

Rediscount  of  Commercial  Paper  for  Any  One  Bank,  No 

Limit  on    45 

Rediscounts  Are  for  Face  Value 39 

Rediscount  of  the  Assignment  of  Open  Accounts 84 

Rediscount  of  Commercial  or  Business  Paper  for  a  Member 

State  Bank 132 

Rediscount,  Demand  Paper  Not  Eligible  for 139 

Rediscount  of  Drafts  Payable  on  Condition 80 

Rediscount  of  Draft  for  Railroad  Supplies 121 

Rediscount,  Eligibility  of  Trade  Acceptances  for 71 

Rediscount  of  Paper  Secured  by  War  Savings  Stamps 113 

Rediscount  of  Participation  Certificate 147 

Rediscounts  of  Commercial  or  Business  Paper,  Limit  on 85 

Rediscounts  of  the  Paper  of  One  Borrower  Made  for  Dif- 
ferent Member  Banks,  Limitations  Upon  the  Aggregate. .  131 

Rediscounted,  Liability  Notes  and  Bills 120 

Refusal  to  Pay  a  Draft 1 

Releasing  Documents 168 

Remote  Period,  Future  Deliveiy  Warehouse  Acceptances 
Covering  Goods  Under  Contract  for  Sale  and  Delivery 

at  a 130 

Renewal  Acceptances 189 

Renewal  of  Drafts  Drawn  by  the  Purchaser  of  Goods  and 
Secured  at  the  Time  of  Original  Acceptance  by  Ware- 
house Receipt  or  Bills  of  Lading 129 

Renewals,  Discount  of  8 

Reopened,  Insolvent  Bank,  Rediscount  to  a 29 

Reserve  Banks,  Mercantile  Firms   Can  Not  Discount   with 

Federal 32 

Reserve  Banks,  Responsibility  with  Federal 22 

Responsibility  with  Federal  Reserve  Banks 22 

Retailers,  Trade  Acceptances  of 68 

Revised  Statutes  Section  5200   31 

Sales  Corporations,  Drafts  Drawn  on 106 

Section  13,  Acceptances  in  Excess  of  Ten  Per  Cent 178 

Section  5200,  Application  of  26 

Section  5200  R.  S.,  Limitations  Under   73 

Section  13  of  Act,  Limitations  Imposed  by 60 


354  ACCEPTANCES 

Section  5200  Revised  Statutes,  Business  Paper  and 50 

Section  5200,  Exceptions  to   40 

Section  5200  Revised  Statutes  31 

Section  13,  Security  Covering  Acceptances  in  Excess  of  Ten 

Per  Cent  Limitation  of 183 

Secured  at  the  Time  of  Original  Acceptance  by  Warehouse 

Receipt  or  Bills  of  Lading,  Renewal  of  Drafts  Drawn 

by  the  Purchaser  of  Goods  and 129 

Secured  by  Warehouse  Receipts,  Paper 143 

Secured  by  Warehouse  Receipts,  Acceptance  of  Drafts 190 

Secured  by  War  Savings  Stamps,  Rediscount  of  Paper 113 

Security   for   Acceptance    Transactions,    Trust   Receipts   as 

Actual 104 

Security  and  Limitations,  Domestic  Acceptances 180 

Security  and  Limitations,  Domestic  Acceptances 182 

Security  Therefor,  Banker's  Acceptances 58 

Sight,  When  to  be  Presented,  Bills  Demanded 94 

Signed  by  the  Drawer,  Negotiability  of  a  Bill  of  Exchange 

Accepted  Before  It  Has  Been 133 

Six  Months'  Agreement 12 

Specific  Goods,  Identification  of 17 

Stamp  Tax  on  Drafts  Drawn  Against  Shipment  from  the 

United  States ". 184 

Stamp  Tax  on  Trade  Acceptances 123 

Stamp  Tax  on  Acceptances 156 

Stamp  "Ti-ade  Acceptance"  Has  No  Value 34 

Stamps  on   Drafts  Drawn   to   Finance  Sales   of  Goods  to 

Allied  Purchasing  Commission,  Revenue 174 

Stamps,"  Rediscount  of  Paper  Secured  by  War  Savings 113 

Staples   Defined 48 

Staples,  Definition  of  Readily  Marketable 188 

State  Bank  Members,  Acceptance  of  Drafts  by ^. 172 

State  Bank,  Rediscounts  of  Commercial  or  Business  Paper 

for  a  Member 132 

State  Banks,  Limitations  on  the  Power  to  Rediscount  for 

Member 194 

Statement  Form 24 

Substitution  of  Security  for  Acceptances  in  Excess  of  Ten 

Per  Cent  Limit 185 

Supplies,  Rediscount  of  Draft  for  Railroad 121 

Syndicate  Acceptance  Credits 76 

Ten  Per  Cent,  Acceptances  in  Excess  of 179 


INDEX  TO  RULINGS  AND^ OPINIONS         355 

Ten  Per  Cent  Limit,  Substitution  of  Security  for  Acceptances 

in  Excess  of 185 

Ten  Per  Cent  Limitation  of  Section  13,  Security  Covering 

Accei^tances  in  Excess  of 183 

Ten  Per  Cent  Limitation  Does  Not  Apjtly  to  Bills  of  Ex- 
change    144 

Ten  Per  Cent,  Section  13,  Acceptances  in  Excess  of   178 

Ten  Per  Cent  to  One  Maker  or  Indorser,  Limit  of 37 

Title,  Drafts  with  Documents  Attached — Conveyance  of .  . . ,   108 

Tools  Elioible,  Notes  for  Farm 25 

Tractor  Work 153 

Trade  Acceptances 177 

Trade  Acceptance  Against  Costs  of  Installation 75 

Trade  Acceptance,  Form  of 170 

Trade  Acceptances. 36 

Trade  Acceptances  of  Retailers GS 

'Trade  Acceptance"  Has  No  Value,  Stamp 34 

Trade  Acceptances  Defined 61 

Trade  Acceptance,  Where  Payable 63 

Trust  Company  Acceptances  Ineligible,  Nonmember 27 

Ti'ust   Receipts   as   Actual   Security  for   Acceptance   Trans- 
actions     104 

United  States  as  Security  for  Rediscounted  Paper,  Bonds  or 

Notes  of  the 138 

United  States  Government,  Drafts  to  Finance  Sales  to  the.  . .   105 
Waiver  of  Demand,  Notice  and  Protest,  Indorsement  on ... .     49 

Waiver  of  Demand,  Notice  and  Protest 82 

Warehouse    Acceptances    Covering    Goods    Under    Contract 
for    Sale    and    Delivery    at    a    Remote    Period,    Future 

Delivery 130 

Warehouse   Receipts    Covering   Automobiles   or   Automobile 

Tires,  Acceptance  of  Drafts  Secured  by. 198 

Warehouse  Receipts  for  Canned  Goods  as  Security 166 

Warehouse  Receipts  or  Bills  of  Lading,  Renewal  of  Drafts 
Drawn  by  the  Purchaser  of  Goods  and  Secured  at  the 

Time  of  Original  Acceptances  by 129 

Warehouse  Receipt,  Receipt  of  Custodian  of  Wool  as 169 

Warehouse  Receipts 69 

Warehouse  Receipts,  Acceptance  of  Drafts  Drawn  and  Se- 
cured  by   Foreign 128 

War  Savings  Stamps,  Rediscount  of  Paper  Secured  by 113 

Warehouse  Receipts,  Paper  Secured  by 143 


356  ACCEPTANCES 

Warehouse  Receipts,  Acceiitance  of  Drafts  Secured  by 190 

Waterworks  Company,  Paper  of 144 

Where  Payable,  Acceptances 98 

Where  Payable,  Trade  Acceptance 63 

"Without  Recourse,"  Indorsement 114 

Wool  as  Warehouse  Receipt,  Receipt  of  Custodian  of 169 


INT>EX 

THE  RULINGS  AND  OPINIONS  OF  COUNSEL  OF  THE 

FEDERAL  RESERVE   BOARD   IN   CHAPTERS   XVIII 

AND  XIX  ARE  SEPARATELY   INDEXED 


"Accept,"  inducements  to  buy- 
ers to,  li6-126 

Acceptance,  coming  vogue  of, 
343 

—  basis    of,    for    foreign    coun- 

tries, 33,  34,  35 
for   United   States,    35,    36 

—  covering    exports,    illustration 

of,  146,  147 

—  customs  in   France,  33,   34 
in  Germany,  34 

in  Great   Britain,   32,   33 

—  houses,  in   Europe,  97 

—  in    foreign    trade,    illustration 

of,  144-147 

—  market,     rates     for     handling 

trade    acceptances    in,    114, 
115 

—  payment,  purpose  of,  3 
theory  of,  3 

—  practice,  importance  of  stand- 

ardized methods  in,  10 

—  registers  or  records  of  bills  re- 

ceivable, Canadian,   28,  29 
— ■  theory,  endorsement  of,  by  in- 
ternational trade,  8 

necessity     of     conservative 

standpoint  in,  7 

—  usage,    bankers'    endorsement 

of,  136,  137 

Acceptances,  bankers'.  See  Bank- 
ers' acceptances. 

domestic,  as  aid  to  United 

States  Credit,  135 

foreign,    as   aid    to    United 

States  credit,   135 

Acceptances  maturing,  bankers ', 
bank's  record  of,  form  for, 
171 


Acceptances,  purchased,  bankers ', 
bank's  record  of,  forms  for, 
174 

—  use  of,  in  United  States  before 

Civil  War,  37 
"Accepted"    trade    acceptances 
itemization  of,   59 

—  method   of  informing  custom- 

ers on,  59 
"Acceptor"  as  a  preferred  buy- 
er, 340,  341 

—  bank    attitude    toward,     107- 

109 

—  bank   of,   as   carrier   of   trade 

acceptances,   102,  103 

—  "buymanship"  of,  331 

—  liability   record   of,   for  bank- 

ers' acceptances,  forms  for, 
175 

—  trade-acceptance    register    for, 

62,  63 

Accommodations,  trade  accept- 
ance as  an  aid  to  getting, 
262,  263 

Accounting,   trade-acceptance,   70 

modifications    in,     necessity 

of,  70 

Accuracy,  wholesale  trade  accept- 
ance as  a  factor  in,  268 

Actuary,  testimonial  of,  on 
wholesale  trade  acceptance, 
269 

Advantages  of  trade  acceptance 
to  retail  customers,  285-300 

American  Acceptance  Council, 
310 

—  bankers '   acceptance  form  de- 

signed by,  150 

—  purposes  of,  310 


357 


358 


INDEX 


American  Acceptance  Council, 
trade-acceptance  form  of,  15 

American  Bankers '  Association, 
as  promulgators  of  trade 
acceptance,  310 

—  attitude    of,    toward    right   of 

banks  to  charge  trade  ac- 
ceptances to  account  of  cus- 
tomers, 114 

—  National     Bank    Division    of, 

plans  of,  for  trade  accept- 
ance, 310 

—  proposals  of  committee  of,  for 

handling    trade   acceptances, 

162-167 
American     Hardware     Manufac- 

tui-ers'  Association,  on  trade 

acceptance,  322 
American     Trade     Acceptance 

Council,   attitude  of,   toward 

inducements,   123-124 

—  duties    of,    319 

—  forms  recommended  by,  164 
triplicate  acceptance  collec- 
tion  forms,   165 

—  organization   of,    310 

—  resolutions    of,    on    trade    ac- 

ceptance, 319 

Applications  for  bankers'  ac- 
ceptances, form  for,   171 

Arguments  for  "trade  accept- 
ance," 327 

Bank  credits,  wholesale  trade 
acceptance  for,  277 

Bank  margins,  wholesale  trade 
acceptance  as  a  saving  in, 
277-278 

Bank  of  California,  Seattle, 
Wash.,  methods  of  handling 
trade  acceptances  by,   161 

Bankers,  advantages  of  trade 
acceptance  to,  264 

wholesale,    282-283 

— •  endorsement  of  trade  accept- 
ance by,  309-310 

—  in  wholesale  trade  acceptance, 

the  credit  buyers'  bankers, 
279-280 

—  on  trade  acceptance,  322,  323 

—  plan   of,   for  promotion  retail 

trade  acceptance,  291 


Bankers'  acceptance,  134 

—  character  of  bills  in,  Federal 

Eeserve  Act  on,  138,  139 

—  definition    and    functions    of, 

134-143 

—  definition  of,  by  Federal  Ee- 

serve Act,  137-139 

—  discount   of,   Federal  Eeserve 

Act  on,   139 

—  distinguishing  marks  on,  134^ 

135 
— ■  domestic,    as    aid    to    United 

States   credit,   135 
authorization    of,    by    Fed- 
eral    Eeserve*   Board,     135- 

136 
detailed       transaction       in, 

151-157 

forms   for,    149 

growth  in  use  of,  135 

illustration  of  use  of,  151- 

157 
individual    usage    in,    151- 

157 
method      of     treating,     by 

banks,   151-157 
method  of  western  bank  in 

handling  of,  150 

—  eligibility  in,  Federal  Eeserve 

Act  on,  137,   138 

—  foreign,     as     aid     to     United 

States  credit,  135 

pre-eminence   of,    135 

— -  —  typical  forms  in,  148 

—  forms    for,    designed    by    the 

American  Acceptance  Coun- 
cil, 150 
employed  by  a  New  York 

discount  house,  177-182 

duplicate  record,  181 

employed     by     large     New 

York    trust    company,    168- 

177 
for    acceptors '    liability 

record,  175 

for  application,   171 

for      bank's      collection 

record,  177 
for  bank 's  credit  ticket, 

173 
for    bank 's    instructions 

for    discount,    172 


INDEX 


359 


Bankers'  acceptances,  forms  for, 
employed  by  large  New 
York  trust  company,  for 
bank's  interest  record,   178 

for  bank 's  memorandum 

of  discount,  172 

for  bank's  record  of  ac- 
ceptances maturing,  171 

for  bank's  record  of  ac- 
ceptances purchased,   174 

for  duplicate  record  for 

various  departments,  179- 
180 

for  endorser 's  and  draw- 
er's  liability  record,   175 

for  loan  division  ac- 
ceptance record,  173 

for  records  of  accept- 
ances sold,   176 

—  function  of,  134 

—  illustration  of,  144-147 

—  importance  of,  4  * 
to  international  trade,  9 

—  law  covering,   140 

—  limitations     of,     Federal     Ee- 

serve  Act  on,  139 

—  methods  in,  144-157 

—  procedure  in,  143 

—  rediscount     in,     Federal     Re- 

serve Act  on,  139-140 

—  ruling     of     Federal     Eeserve 

Board  on,   134 

—  standing  of,   135 

—  state  laws  on,  142 

—  statements     of.     Federal     Ee- 

serve  Act  on,   138 

—  to  finance  cotton  crop,  141 
Banking    accommodation,    ruling 

of  Federal  Reserve  Board 
on,  for  trade  acceptances, 
276,  277 

Banking  benefits  to  seller,  whole- 
sale trade  acceptance  as, 
275 

Banks,  acceptors',  as  carriers  of 
trade  acceptances,  objections 
to,  103-104 

reasons  for,  102,  103 

—  attitude  of,  toward  trade  ac- 

ceptances, 107 
questionnaire  on,   189 


Banks,  handling  of  bankers'  ac- 
ceptances by,  collection  record 
for  bankers'  acceptances  in, 
forms  for,  177 

interest  forms  for,  178 

—  handling  trade  acceptances  by, 

96,  107,  158 
collecting  of   trade  accept- 
ances in,  112-115 
discounting     of     trade     ac- 
ceptances in,  109-112 

methods  of,  illustrations  of, 

158-160 

record  sheets  for,  161 

filled  in,  161-162 

right    of    banks    to    charge 

trade     acceptances     to     cus- 
tomers in,   113-114 

standard  form  in,   114 

Benefits  from  trade  acceptances, 
questionnaire  on,   192 

—  to  buyer,  193 

Bills,  use  of,  in  European  and 
Canadian    trade,    24 

Bills  receivable,  acceptance  reg- 
isters or  records  of,  Cana- 
dian, 28,  29 

Bonus,  cash,  in  special  discount 
plan  in  retail  trade  accept- 
ance, 295 

Bookkeeping,  for  trade  accept- 
ances, 80-81 

discounted,  81 

—  trade  acceptance  as  an  aid  to, 

262 

in  wholesale  trade  accept- 
ance, 272 

Brokers  as  buyers  of  acceptances, 
99-100 

Business,  trade  acceptance  an  aid 
to,  339 

Business  Bourse,  check-up  sheet 
designed  by,  66 

—  daily  record  sheet  designed  bv, 

68 

—  trade-acceptance  form  of,  20, 

21 

Business  War  Conference  as  pro- 
mulgators of  trade  accept- 
ance, 310 

Buyer,  "acceptor"  as  a  pre- 
ferred, 340-341 


360 


INDEX 


Buyer,   advantagea   of   trade   ac-  | 
ceptance  to,  119,  263  i 

— ■  —  of    wholesale    trade    accept- 
ance to,  280-283 

—  attitude  of,  toward  shortages 

and    trade    acceptance,    331- 
332 

—  buying     power     of,     through 

trade  acceptance,  331 

—  collection    from    trade    accept- 

ances an  aid  to,  330 

—  credits   to,    and   trade    accept- 

ance, 327 
— ■  differentiation     of     trade     ac- 
ceptance and   note   to,   328- 
329 

—  explanation     of     trade-accept- 

ance plan  to,  327 
— •  filling  in  of  trade  acceptances 
by,  correct  methods  of,   72- 
73 

—  inducements  for,  to  ' '  accept, ' ' 

116-126,    327 
— •  inducements  for  trade  accept- 
ances   from    standpoint    of, 
120 

—  liability   of,   in   trade   accept- 

ance, 17,  18 

—  near-cash  basis  for,  and  trade 

acceptances,   331 

—  preconsideration    of    debts   of, 

promoted    by    trade    accept- 
ance, 329 

—  preference    of,    for    trade    ac- 

ceptances instead  of  drafts, 
333 

—  refusal  of  trade  acceptances  a 

detriment   to,   336 

—  relationship      of,      to      banks, 

trade-acceptance       argument 
for,  332 
— suggestions       to,       regarding 
trade  acceptances,   85 

—  time     allowance     due     to,     in 

trade  acceptance,   332 

—  trade  acceptance  as  credit  for, 

331 

—  trade-acceptance    register    for, 

62,  63 

—  wholesale    trade    acceptance    a 

sanction      for      terms      for, 
274 


Buyers  of  acceptances,  96 

—  banks,   96 

—  brokers,  99-100 

—  commercial  paper  houses,   99- 

100 

—  Federal  Eeserve  Banks,  99 

—  note  brokers,   100 

"  Buymanship, "   genesis  of,  341 

California  Electrical  Contrac- 
tors' and  Dealers'  Associa- 
tion on  trade-acceptance 
usage,  317 

Canada,  trade-acceptance  usage 
in,  342 

Canadian  acceptance  registers  or 
records  of  bills  receivable, 
28,  29 

Canadian  credits,  principles  and 
procedure  in,  26,  27,  30,  31 

Canadian  forms  for  trade  ac- 
ceptance,  27,   30 

Canadian  trade  acceptances,  in- 
feriority of,  compared  with 
those  of  United  States,  31 

—  renewability  of,  31 

Cash  bonus  payment  in  special 
discount  plan  for  retail 
trade   acceptance,   295 

Cash-discount  system,  effect  of 
trade  acceptance  on,  7 

—  wholesale      trade      acceptance 

preferable  to,  268-269 

Cash  resources,  trade  acceptance 
as  a  gauge  to,  261 

Cash  terms  in  trade  acceptances, 
allowance  for,  77 

Cash  terms  not  affected  by  trade- 
acceptance,  46 

Chamber  of  Commerce,  New 
York,  on  trade  acceptance, 
323 

Chamber  of  Commerce  of  the 
United  States  as  promulga- 
tors of  trade  acceptance, 
310 

Charge  accounts,  retail  trade  ac- 
ceptance as  a  help  in  collec- 
tion  of,   285 

—  wholesale  trade  acceptance  as 

a  prevention  for  the  hypoth- 
ecation of  open,  278-279 


INDEX 


361 


Check,  trade  acceptances  com- 
pared with,  338 

Checking  plans  for  trade  accept- 
ances, 67 

Cheek-up  sheet  for  trade-accept- 
ance results,  66 

Clerical  handling  of  trade  ac- 
ceptances, 83,  84 

Cleveland  credit  men,  on  ac- 
ceptance   study,   319-320 

Collecting    trade  tacceptances,    12 

—  bank  methods  of,   107 

—  by  seller  through  bank,  meth- 

ods of,   112 

—  individual  methods  of,  114 
Collection,    trade    acceptances    as 

an  aid   to,   262,   330 

—  in  retail  trade  acceptance,  285 
Collection     costs     of     trade     ac- 
ceptances,   questionnaire    on, 
191 

Collection  notice  for  trade  ac- 
ceptances, forms  for,  166 

Collection  record  for  bankers' 
acceptances,  bank's,  forms 
for,  177 

Confidence  element  in  credit,  303 

Commercial  paper,  trade  accept- 
ance as  an  aid  for  making 
of,   easier   and   cheaper,    284 

Commercial  paper  houses  as  buy- 
ers of  acceptances,  99,  100 

—  location  of,  101 
Consumer,    retail,    advantages   of 

trade-acceptance     credit    to, 

302 
approval    of    careful,    299- 

300 

credit  and,  303 

ultimate    advantages    of 

trade     acceptance     to,     304- 

305 
trade  acceptance  and,  301- 

308 

benefits  of,  307-308 

biggest  buyer  and  high- 
est payer,  301 
credit     a     necessity     to, 

301-302 
nature    and    method    of 

handling    trade    acceptances 

by,  306-307 


Consumer,  retail,  trade-accept- 
ance and,  participant  in 
business  conditions,  302 

—  ultimate,   plan  of,  for  use  of 

retail  trade  acceptance,  291- 
293 
Consumer's    credit,    on    a    near- 
cash   plan,   303-304 

—  versus   merchant 's   credit,   303 
Cotton    manufacturers    on    trade 

acceptance,  321 
Credit  as  an  asset  to  merchant, 
303 

—  bank,    in    wholesale    trade    ac- 

ceptance,  277 

—  Canadian,  principles  and  pro- 

cedure in  26,  27,  30,  31 

—  confidence      element      in,      3, 

303 

—  consumer's,     on     a    near-cash 

plan,   303-304 

—  importance    of,    to    commerce 

in      early      development      of 
United  States,  37 

—  in    retail   trade,   necessity   of, 

128 

—  influence    of    Federal   Reserve 

Act  on,  39,  40 

—  merchant 's  versus  consumer 's, 

303 

—  tendency^  to  time  extension  in, 

by  trade  acceptance,  7 

—  time  element  in,  3,  303 

—  trade    acceptance    in    relation 

to,   3 
advantages    of,    to    United 

States,  267 
as  an  aid,  17,  20,  135,  327, 

335,  336 

importance  of,  43 

questionnaire  on,   190 

■  retail  trade  acceptance  as  a 

creator  of  highest  grade  of, 

305,   306 
wholesale,   trade  acceptance 

as  an  instrument  of,  268 
working  plan  of,  importance 

of,  50 
Credit    buyers,    duty    of,    toward 

trade    acceptance,    336 

—  retail,  lack  of  demand  for  re- 

tail trade  acceptance  by,  290 


362 


INDEX 


Credit  buyers,  ultimate  advan- 
tages of  trade  acceptance  to, 
304-305 

—  wholesale      trade      acceptance 

and,  279-280 

Credit  ' '  captain, ' '  wholesale 
trade  acceptance  a  compass 
for,  274 

Credit  conditions,  trade-accept- 
ance  influence  on,   261 

—  wholesale  trade  acceptance  as 

a    graphic    presentation    of, 

270-272 
Credit  men,  attitude  of,  toward 

inducements,  124 
toward     trade     acceptance, 

340 

—  in  trade  acceptance,  318,  319- 

320,  324,  325 

Credit  Men,  National  Associa- 
tion of,  pioneers  in  promul- 
gation of  trade  acceptance, 
309,  310 

Credit  sales,  operation  of,  in 
trade  acceptance,  6 

Credit  ticket,  bank's,  for  bank- 
er's acceptances,  173 

Currency,     stabilization     of,     by 

National  Bank  Act,  39 
.Customer,     attitude    of,     toward 
trade    aceptance,, importance 
of,  44 

on   retail  trade   acceptance, 

293 

questionnaire   on,   188-189 

—  retail,    methods    of    handling 

trade   acceptance   with,   285- 
300 

Daily  record   form,  68 

Debts,  preconsideration  of,  pro- 
moted by  trade  acceptance, 
329 

Discount,  bank 's  memorandum 
of,  for  bankers'  acceptances, 
forms  for,  172 

—  establishment     of     first     com- 

pany for,  24 

—  extension     of,     facilities     for, 

104-106 

—  in  trade  acceptance,  correct 

plans  for.   111,   112 


Discount,  in  trade  acceptance, 
correct  time   for,   112 

facilities   for,   17 

methods  ot,  96 

bank,  107 

questionnaire  on,  193 

rate  of,   12,  109 

special   plan    for,    in   retail 

trade  acceptance,  293-298 

bookkeeping       procedure 

in,  295-296-  [295 

— cash    bonus   payment   in, 

form  for,  296,  297 

for    special    discount, 

295 

necessity  for  modifica- 
tions in,  298-299 

New     York     department 

store  method  for,  293-295 

discount     for     deposit 

account  of  customers  in,  294 

introduction     of    plan 

for,   294-295 

—  influence    of    Federal   Eeserve 

Act  upon,  39,  40 

—  of        bankers '        acceptances, 

bank's  instructions  for,  form 
for,  172 

—  of     notes,    popularity    of,    in 

United  States,   31 

—  trade,    for    trade    acceptances. 

Federal  Eeserve  Board  rul- 
ing on,  267 

wholesale    trade    acceptance 

as  an  aid  for,  272-273 

Discount  banks  in  the  United 
States,   97-98 

Discount  brokers,  location  of, 
101 

Discount  companies,  in  Europe, 
97 

—  in   London,  98-99 

—  in  the  United  States,  9-8,  99 

—  method  of  handling  trade  ac-  ' 

ceptances  by,   160 

Discount  cost  compared  with  in- 
terest cost,  110 

Discount  market,  trade  accept- 
ance as  a  builder  of,  284 

Discount  rates,  codified  by  Fed- 
eral  Eeserve   Board,   110 

— •  in  trade   acceptances,   12,   109 


INDEX 


363 


Discounted      trade      acceptances, 

book-keeping   for,   81 
. —  proportion    of,    questionnaire 

on,  190 
"Dollar   Exchange"  for  foreign 

trading,      Federal      Eeserve 

Act  on,   140-141 
Domestic    bankers '    acceptances, 

as    aid     to     United    States 

cerit,    135 

—  authorization    of,    by    Federal 

Reserve  Board,   135-136 

—  detailed    transaction    in,    151- 

157 

—  forms  for,  149 

—  growth   in   use  of,   135 

—  illustration  of,  151-157 

—  individual  usage  in,  151-157 

—  method  of  treating,  by  banks, 

150,   151-157 
Drafts,    differentiation    of    trade 
acceptances  from,  333-334 

—  use   of,   with   bills   of    lading, 

32 
Dry-goods,    merchants'    plan    for 
retail  trade  acceptance,  289- 
290 

Economy,  wholesale  trade  accept- 
ance as  a  factor  in,  268 

Electrical  dealers  and  contrac- 
tors on  trade  acceptance,  317 

Electrical  Supply  Jobbers'  Asso- 
ciation, on  trade-acceptance 
usage,  317 

Empire  State  Association  of 
Stove  Manufacturers,  plans 
of,  for  introduction  of  trade 
acceptance,   312-313 

England,  trade-acceptance  sys- 
tem of,  effectiveness  of, 
339 

Exchange,  bills  of,  Martin  Van 
Buren  on,  38 

Extension  in  trade  acceptance, 
impossibility  of,  16 

Federal  Reserve  Act,  as  aid  to 
building  up  acceptance  basis 
procedure,  35,  36 

—  influence   of,   upon  credit  and 

discount,  39,  40 


Federal  Reserve  Act,  on  bank- 
ers' acceptance,  137 

character   of   bills  in,   138- 

139 

definition  of,  137-139 

statements  in,    138 

discount  in,    139 

eligibility  of,  137,  138 

evidence    of    eligibility    in, 

138" 

limitations  of,   139 

rediscount   in,   139-140 

—  on  "  dollar  exchange ' '  for  for- 

eign trading,  140-141 

—  value  of,  39,  40 

Federal  Reserve  banks,  attitude 
of,  in  discounting  trade  ac- 
ceptances,  96-97 

toward   inducements,   124 

—  enlargement      of      scope      of, 

through    trade    acceptances, 
12 

—  power  of,  to  purchase  accept- 

ances, 99 

—  trade    acceptances   eligible    to 

rediscount  by,  42,  43 
Federal   Reserve  Board,    as   pro- 
mulgators   of    trade-accept- 
ance plan,  309 

—  attitude    of,    toward    induce- 

ments, 124 
toward    right   of   banks    to 

charge  trade   acceptances  to 

account  of  customers,  114 
■ —  authorization       of       domestic 

bankers '  acceptance  by,  135- 

136 

—  discount     rates     codified     by, 

110 

—  encouragement      of      use      of 

bankers'     acceptances,     for- 
eign and  domestic,  by,  141 

—  high  regard   of,  for  trade  ac- 

ceptance, 337 

—  official    definition    of    ' '  trade 

acceptances"  by,  41 

—  opinions  of,  212-258.    See  also 

Special  Index,  page  344. 

—  regulations  of,  importance  of, 

40 

—  rulings  of,  197-211.     See  also 

Special  Index,  page  344 


364 


INDEX 


Federal  Eeserve  Board,  rulings 
of,  on  bankers '  acceptances, 
134 

on  trade  acceptances,  40-42 

on  banking  recommen- 
dation for,  276-277 

on    character    of    paper 

eligible  in,  42 

on    legitimacy   of   retail, 

131-132 

on  method  of  certifying 

eligibility  of,  43 

on    rediscount    in,    110- 

111 

on    trade    discount    for, 

267 

on   trade   acceptances   with 

order,  75-76 

—  trade     acceptance     form     ap- 

proved by,  21,  22 

—  promulgation   of  trade-accept- 

ance by,  12,  40 

Financial  digest  argument  for 
trade  acceptance,  328 

Firms'  attitude  toward  trade  ac- 
ceptances, questionnaire  on, 
190 

Follow-up  methods  in  trade  ac- 
ceptances, questionnaire  on, 
191 

Forms  used  in  trade  acceptance. 
See  Trade-acceptance  forms. 

France,  acceptance  customs  in, 
33,  34 

Free  discount  bill,  development 
of,  in  European  trade,  24 

Garment  makers  on  trade  accept- 
ance, 320 

Georgia  on  rights  of  bank  to 
charge  trade  acceptances  to 
customer's  account,  113-114 

Germany,  acceptance  customs  in, 
34 

"Goods,"  definition  of,  in  trade- 
acceptance,   11 

Great  Britain,  acceptance  cus- 
toms in,  32,  33 

Grocers,  retail,  plan  for  use  of 
trade  acceptance  by,   288 

—  wholesale,  on  trade  acceptance, 

321 


Guardian  Trust  and  Savings 
Bank  of  Toledo,  attitude  of, 
toward  inducements,  121 

Harding,  Gov.  P.  G.,  advocation 
of  bankers'  acceptances  by, 
141 

Hardware  manufacturers  on 
trade  acceptance,  322 

Harris,  Beverly  D.,  vice-presi- 
dent National  City  Bank  of 
New  York,  comment  of,  on 
trade  acceptance,  316 

Hypothecating  accounts  with 
banks,  popularity  of,  in 
United  States,  31 

Illinois  on  right  of  bank  to 
charge  trade  acceptances  to 
customer's  account,  113- 
114 

Inducements  for  trade  accept- 
ances, consensus  of  opinion 
for  and  against,  120-124 

questionnaire  on,   192 

Inducements  to  buyers  to  ' '  ac- 
cept," 116-126 

Inducements  used  by  big  con- 
cerns, 126 

Interest  charges,  trade  accept- 
ance as  an  aid  to  reducing, 
262 

Interest  cost  compared  with  dis- 
count cost,  110 

Internal  Eevenue  Department, 
ruling  of,  on  use  of  revenue 
stamps  on  acceptances,  79 

Introduction  of  trade  acceptance, 
309 

—  by  organizations,  311 

—  plans  for,  116 

obligatory,  116-117 

optional,  116-117 

with  inducements,  116-117, 

118 

Jobbers,  advantages  of  trade 
acceptance  to,  268-284 

— ■  on  wholesale  trade  acceptance, 
271,   272 

—  trade-acceptance      usage      by, 

317 


INDEX 


365 


Kansas  on  right  of  bank  to 
charge  trade  acceptances  to 
customer's  account,   113-114 

Liability  record,  indorser  's  and 
drawer's,  forms  for,  175 

Liquidation  of  paper,  self-, 
trade  acceptance  as  a  help 
to,  283-284 

Loan  division  bankers'  accept- 
ance record,  form  for,  173 

Loans,  wholesale  trade  accept- 
ance as  a  help  in  keeping  of, 
liquid,  282-283 

Louisville  Hardwood  Club,  on 
trade  acceptance,  322 

Lumbermen 's  Association  of 
Texas,  on  trade-acceptance, 
322 

Lumbermen 's  Club  of  Memphis, 
on  trade  acceptance,  322 

Manufacturers,  advantages  of 
trade  acceptance  to,  268-284 

—  on  trade  acceptance,  317-318, 

320,  321,  322,  324 

—  trade-acceptance      usage      bv, 

310,  312-315,  316-317 

Manufacturers,  National  Organi- 
zation of,  plans  for  intro- 
duction of  trade  acceptance 
by,  314-315 

Markets  for  trade  acceptances, 
96 

Massachusetts  Bankers'  Associa- 
tion, attitude  of,  toward  in- 
ducements, 122 

Material  dealers  on  trade  accept- 
ance, 322 

Merchant,  credit  as  an  asset  to, 
303 

—  credit   of,   versus   consumer's, 

303 

—  small,  trade  acceptance  an  aid 

to,  340 
Minnesota,   on   right  of  bank  to 
charge  trade  acceptances  to 
customer's  account,  113-114 

National  Association  of  Cotton 
Manufacturers  on  trade  ac- 
ceptance, 321 


National  Association  of  Credit 
Men,  endorsing  trade  accept- 
ance, 318 

National  Association  of  Credit 
Men,  pioneers  in  promulga- 
tion of  trade  acceptance, 
309,  310 

—  resolution    by,    on    trade    ac- 

ceptance, 325 

—  trade  acceptance  form  of,  18, 

19 

National  Association  of  Gar- 
ment Makers,  on  trade  ac- 
ceptance, 320 

National  Association  of  Manu- 
facturers as  promotors  of 
trade  acceptance,   310 

—  on    trade    acceptance,    324 
National  Bank  Act,  for  stabiliza- 
tion of  currency,  39 

National  City  Bank  of  New 
York,  early  report  of,  on 
trade-acceptance    usage,    316 

National  Paint,  Oil  and  Varnish 
Association,  on  trade  accept- 
ance, 320 

National  Wholesale  Grocers'  As- 
sociation on  trade  accept- 
ance, 321 

Near-cash  buying  basis,  trade  ac- 
ceptance and,  331 

Nebraska  on  right  of  bank  to 
charge  trade  acceptances  to 
customer's  account,   113-114 

Negotiable  Instruments  Law, 
Uniform,  regarding  trade  ac- 
ceptances,  113 

New  York,  Automobile  Accessory 
Jobbers '  Association  on 
trade-acceptance  usage,  317 

New  York  Banking  Law  on  bank- 
ers'   acceptances,   142 

New  York  Chamber  of  Commerce 
on  trade  acceptance,  323 

New  York  State  Bankers'  Asso- 
ciation on  trade  acceptance, 
322 

Note  brokers  as  buyers  of  ac- 
ceptances,  100 

Notes,  differentiation  of  trade 
acceptances  from,  16,  328, 
329 


366 


INDEX 


Objections  to  trade  acceptances, 
methods  of  overcoming,  ques- 
tionnaire on,  189 

Open-account  system,  effect  of 
trade  acceptance  on,  7 

Open  charge  accounts,  wholesale 
trade  acceptance  as  a  pre- 
ventive for  the  hypotheca- 
tion of,  278-279 

Optical  Association's  letter  on 
trade-acceptance  usage,  317 

Overextension,  wholesale  trade 
acceptance  a  preventive  of, 
273 

Paint    manufacturers    on    trade 

acceptance,  320 
Payment,    in    trade    acceptances, 

73 

—  action  of  banks  in,  74 
Payments,  trade  acceptance  as  an 

aid  to  prompt,  281-282 
Pennsylvania  ruling  on  bankers ' 

acceptances,  142 
Preferential   rate  in   retail   trade 

acceptance,  292-293 

—  in  wholesale  trade  acceptance, 

282-283 

Eates  for  handling  trade  accept- 
ances in  acceptance  market, 
114-115 

Eaw  Silk  Trade  Council  on  trade- 
acceptance,  321 

"Receivable"  trade  acceptances, 
entries  for,  83 

Eecords  of  bankers '  acceptances, 
acceptor's  liability,  175 

banks  collection,  177 

indorser's      and      drawer's 

liability,  175 

loan  division,  173 

duplicate,  for  various  de- 
partments,  179-180 

forms  employed  by  a  New 

York  discount  house,  181 

of     acceptances     maturing, 

171 

of    acceptances    purchased, 

banks',  174 

of  acceptances  sold,   176 


Records     of     trade     acceptances, 

78-79 

segregated  bank,  158 

sheets    for    handling    trade 

acceptances  by  banks,  161 

filled-in,  161-162 

suggestions  for,  58 

— 100  per  cent,  necessity  of,  69 
Rediscount  of  trade  acceptances, 

by    Federal   Reserve   Banks, 

42,  43 

—  eligibility  for,  110-111 

—  form   for,   demanded  by   Fed- 

eral Reserve  Banks,  21 
Register,    trade   acceptances,   for 

acceptor   (buyer),  62,  63 

for   drawer    (seller),  63 

standard,    suggestions    for, 

57,  61-62 

use  of,  59 

varying  forms  of,  64-65 

Renewal    of    trade    acceptances, 

impossibility  of,  16 
Retail  merchant,  duty  of  modern 

business  science  toward,  130 

—  trade    acceptances    and,    127- 

133 

Retail  possibilities  of  trade  ac- 
ceptance, 127 

Retail  trade,  necessity  of  credit 
in,  128 

—  use    of    acceptances    in,    129- 

130 
Retail     trade     acceptances,     ad- 
vantages of,  to  retailer,  285 

—  as  aid  in  collection  of  charge 

accounts,  285 

—  as  aid  to  turn-over,  286 

—  as    creator    of    highest    grade 

of  credit,  305-306 
— authorities '     attitude     toward, 
299 

—  bankers'    plan    for   promotion 

of,  291 

—  consumer  in,  301-308 

as  biggest  buyer  and  high- 
est payer,  301 

as    participant   in   business 

conditions,  302 

benefits  of,  307-308 

careful,   approval   of,   299- 

300 


INDEX 


367 


Retail  trade  acceptances,  con- 
sumer in,  credit  a  necessity 
to,   301-302 

credit  and,  303 

advantages  of,  302,  304- 

305 

nature      and      mothod      of 

handling  of,   306-307 

—  desirability    for    creating    de- 

mand for,   290 

—  human  nature  in  use  of,  291- 

293 

—  in  Joliet,  111.,  288 

—  in  wholesale  business,  286 

—  lack  of  demand  for,  by  retail 

credit  buyers,  290 

—  legitimacy  of,  131 

—  methods   of   handling,   with   a 

retail   customer,   285-300 

—  promotion  of  plan  for,  by  re- 

tailer, 287 
by     preferential     discount, 

287 

obligatory,  287 

optional,  287 

—  retail   customers'    attitude   in, 

importance  of,  293 

—  retail     dry-goods     merchant 's 

plan  for,  289-290 

—  retail  grocer's  plan  for,  288 

—  plan     of    retailer    in     Middle 

West  for,  287 
— ruling   on,   informal,   132-133 

—  special  discount  plan  in,  293- 

298 

bookkeeping  in,  295-296 

cash     bonus     payment     in, 

295 

form  for,  296,  297 

for  special  discount,  295 

necessity    for    modifications 

in,  298-299 
New  York  department  store 

method  for,  213-215 
discount   for  deposit  ac- 
count     of      customers      in, 

294 
introduction  of  plan  for, 

294-295 

—  standard  plan  of,  for  use  with 

preferential  rate,  292-293 

—  status  of,  300 


Retail  trade  acceptances,  ulti- 
mate consumer 's  plan  for 
use  of,  291-293 

discount  for  deposit  ac- 
count of  customers  in,  294 

introduction  of  plan  for, 

294-295 

—  standard  plan  of,  for  use  with 

preferential  rate,   292-293 

—  status  of,  300 

—  ultimate   consumer 's  plan   for 

use  of,  291-293 

Revenue  stamps  on  trade  ac- 
ceptances, 23,  79 

River  National  Bank  of  St. 
Louis,  method  of,  in  treating 
individual  domestic  bankers' 
acceptance,    151-157 

Salesman,  importance  of  under- 
standing of  trade  accept- 
ances by,  49 

—  instructions  and  letters  to,  re- 

garding   trade     acceptances, 
85 

—  promotion     of     trade     accept- 

ances with,  questionnaire  on, 
189,  191 

—  typical    letters   to,   on   promo- 

'tion,    90-95 

Savings  Bank  Section,  of  the 
American  Bankers'  Associa- 
tion, on  trade  acceptance, 
323 

Seller,  advantages  of  trade  ac- 
ceptance to,  120,  261 

—  correct  form  for  name  of,  71, 

72 
— •  instrument  in  making  of  trade 
acceptance,  16 

—  liability   of,    in    trade   accept- 

ance, 18,  19,  20 

—  making  out  of   trade   accept- 

ances by,   correct  usage   in, 
70-72 

—  need    of    capital    accommoda- 

tion by,  125-126 

—  trade-acceptance    register    for, 

63 

—  wholesale    trade    acceptance    a 

sanction      for      terms      for, 
274 


368 


INDEX 


Seller,  wholesale  trade  accept- 
ance as  banking  benefit  to, 
275 

Selling  of  trade  acceptances  out- 
side of  bank,  questionnaire 
on,  193 

Service  charges  for  trade  ac- 
ceptances, 109 

Sherman  Law  and  trade  accept- 
ance, 325 

Silk  manufacturers  on  trade  ac- 
ceptance, 321 

South  Dakota  on  right  of  bank 
to  charge  trade  acceptances 
to  customer's  account,  113- 
114 

Stove  manufacturers  endorsing 
trade  acceptance,  317-318 

St.  Louis  Material  Dealers'  As- 
sociation, on  trade  accept- 
ance, 322 

Terms  of  trade  acceptances, 
printing  of,  on  invoice,  76 

on  order,  76 

• —  special,  for  introducing,  45, 
46 

Time  accommodations  in  trade 
acceptance,  263,  332 

Time-extension,  method  of  hand- 
ling, in  trade  acceptances, 
82-83 

—  wholesale  trade  acceptance  as 

an  aid  for,  272-273,  278-279 
Time  in  credit,  303 
Toy   manufacturers    of    America 

on    trade    acceptance,    316- 

317,  320 
Trade    association     attitude     on 

trade   acceptances,    question- 
naire on,  193 
Trade       acceptance,       American 

Trade     Acceptance     Council 

on,  319 

—  as  business  stabilizer,  in  Eng- 

land, 25 

—  as  cash  on  delivery,  342 

—  as  credit  aid,  17,  20 

—  bankers  on,  322,  323 

—  buyer's  liability  in,  17,  18 

—  Chambers    of    Commerce    on, 

323 


Trade  acceptance  character  of 
paper  eligible  in.  Federal 
Reserve  Board  ruling  on, 
42  ^         ' 

—  collections  in  practice  of,  12 

—  credit   men   on,   318,   319-320, 

324,  325 

—  customer's     attitude     in,     im- 

portance of,  44 

—  dealers  on,  322 

—  definition  of,   3,   12 

by  Federal  Reserve  Board, 

11,  41 
technical,  14,  15 

—  discount  rate  in,  12 

—  discontinuance  of,  during  Civil 

War,  5 

—  early  use  of,  as  form  of  cur- 

rency, 4 

—  effect  of,  on  cash-discount  sys- 

tem, 7 
on  open-account  system,  7 

—  electrical  dealers  on,  317 
— grocers  on,  321 

—  in  Canada,  342 

—  in  England,  339 

— installation  of,  method  of,  44 

—  liquidation  of  credit  in,  6 

—  lumbermen   on,   322 

—  manufacturers     on,     317-318, 

320,  321,  322,  324 

—  merchandise  credit  sales  in,  6 

—  method   of   certifying  eligibil- 

ity of  paper  in,  Federal  Re- 
serve Board  ruling  on,  42 

—  method  of  operation  of,  5,  22 

—  National  Association  of  Credit 

Men  indorsing,  318 

—  non-application   of,    15 

—  purpose  of,  23 

—  relation  of  credit  to,  3 

—  scope  of,  in  Europe,  25 

—  seller's  liability  in,  18,  19,  20 

—  Sherman  Law  and,  325 

—  stove   manufacturers'   endorse- 

ment of,  317-318 

—  tendency    of,    toward    time-ex- 

tension  of    credit,    7 
toward   undue  credit  infla- 
tion, 7 

—  theory  of,  methods  of  present- 

ing, 85-86 


INDEX 


369 


Trade-acceptance    accounting,    70 

—  modifications  in,  necessity  of, 

70 

' '  Trade-Acceptance  Catechism, ' ' 
quotation  from,  on  induce- 
ments, 123 

Trade-acceptance  forms,  Cana- 
dian, 27,  30 

—  for  bank  liandling  of,  stand- 

ard, 114 

—  for  collection  blank,  triplicate, 

recommended  by  the  Amer- 
ican Trade  Acceptance  Coun- 
cil, 165 

—  for    collection    notice    recom- 

mended by  the  American 
Trade  Acceptance  Council, 
166 

—  for  daily  record,  68 

—  for  follow-up,  79 

—  for    rediscount,    demanded   by 

Federal  Reserve  Banks,   21 

—  for   trade    acceptances,    filling 

in  of,  by  buyer,  54,  55,  72- 

73 

by  seller,  22,  70-72 

amount  in,  71 

dating  of,  70 

of     American     Acceptance 

Council,  15 
of  American  Trade  Accept- 
ance Council,  164 
of     Business     Bourse,     20, 

21 
of  National  Association  of 

Credit  Men,  18,  19 

place  of  payment  in,  73 

points  on,  55 

questionnaire  on,  191 

seller's  name  in,  71,  72 

standard,  56,  338-339 

Trade-acceptance    promotion,    85 
• —  credit     department     follow-up 

in,  87 

—  letters  for,  to  buyers,  94-95 
typical  first  form  letter, 

87-89 

typical  second  form  let- 
ter, 89-90 

typical  third  form  let- 
ter, 90 

to  salesmen,  90-95 


Trade-acceptance  promotion,  let- 
ters from  officials  on,  im- 
portance of,  86 

Trade-acceptance    records,    78-79 

—  daily,  68 

—  necessity  of  100  per  cent,  69 

—  segregated  bank,  158 

—  suggestions   for,   58 
Trade-acceptance      register      for 

buyer   (acceptor),  62,  63 

—  for  seller   (drawer),  63 

—  standard,   59 

suggestions  for,   61-62 

—  suggestions  for,  57 

—  varying  forms  for,  64-65 
Trade-acceptance     terms,     print- 
ing of,  on  invoice,  76 

on  order,  76 

—  statement  of,  51 

as  to  discount,  51,  52 

as  to  freight  allowance,  51, 

52 

as  to  time,  51,  52 

necessity  of,  51 

to  employees,  52 

Trade  acceptances,  "accepted," 
itemization  of,  59 

method  of  informing  cus- 
tomers on,  59 

—  acceptors'    banks    as    carriers 

of,  reasons  for,  102,  103 

—  advantages   of,   119-120,   261- 

264 
to    American    businessman, 

261-267 

to  bankers,  264 

to  buyer,  119,  263 

in    elasticity    of     terms, 

280-281 
to     credit     policy     of     the 

United  States,  135,  267 

to  general  business,  264 

to  seller,  120,  261 

to  wholesaler,   in  elasticity 

of  terms,  280 
universal,  343 

—  arguments  for,  327 

—  as  a  business  short  cut,  339 

—  as  aid  in  business  discrimina- 

tion, 263 

—  as  aid  in  getting  business  ac- 

commodations, 262 


370 


INDEX 


Trade  acceptances,  as  aid  in 
getting  extra  time  accom- 
modations, 263 

—  as   aid   in   making  collections, 

262 

—  as  aid  in  making  commercial 

paper  easier  and  less  costly, 
284 

—  as    aid    in    reducing    interest 

charges,  262 

—  as  aid  to  accurate  cash  budget, 

262 

—  as  aid  to  credit,  43,  135,  335- 

336 
• —  as    aid    to    more   business-like 
methods,  263 

—  as    aid    to    prompt   payments, 

281-282 

—  as  aid  to  small  merchant,  340 

—  as  builder  of  a  real   discount 

market,   284 

—  as   completed    instrument,    22, 

23 

—  as   gauge   for   cash   resources, 

261 

—  as  investment,  12 

—  banking  clerical  work  involved 

in,  109 

—  bankers '  endorsement  of,  309, 

310 

—  bankers'   rating  of,   17 

—  banks  as  market  for,  96 

—  banks'    attitude   toward,    102", 

107 

—  bookkeeping  for,  80,  81 

—  Canadian,    31 

rcnewability  of,  31 

—  carbon    duplicates  of,   use   of, 

59,  60 

—  cash   terms  in,   allowance   for, 

77 

—  check  compared  with,  338 

—  checking  of,  67 

—  check-yp  sheet  for,  results  in, 

56 

—  collecting    of,    bank    methods 

for,   107 

by  seller  through  bank,  112 

individual  methods  of,  114 

notice   unnecessary   in,    73- 

74 

—  dating  of  invoices  in,  70 


Trade  acceptances,  differentia- 
tion of,  from  drafts,  333- 
334 

-from  notes,  16,  328-329 

—  discount  rate  in,  109 

—  discounting  of,  bank  methods 

for,  107 
— ■  —  book-keeping  for,  81 

correct  plans  for.  111,  112 

correct  time  for,  112 

facility  of,  17,  104-106 

methods  of,  96 

—  earmarks  of,  337 

—  educational  campaign  for,  78 

—  Federal  Eeserve  Board  ruling 

on,  40-42 

—  financial  range  of,  336 

—  ' '  gilt-edge ' '  credit  paper,  16 

—  handling  of,  channels  for,  96 
clerical,  83,  84 

methods  of,  by  banks,   158 

•  —  by  Bank  of  California, 

Seattle,  Wash.,  161 

filled-in   record  sheets 

for,   161-162 

illustrations   of,    158- 

160 

proposals  of  Commit- 
tee of  the  American  Bank- 
ers' Association  on,  162-167 

record  sheets  for,  161 

by    discount    companies, 

160 

in     acceptance     market, 

114-115 

of  unpaid,  81,  82 

questionnaire  on,  192 

—  inducements   for,   from   stand- 

point of  buyer,  120 

—  —  opinions    for    and    against, 

120-124 

—  influence  of,  upon  credit  busi- 

ness, 261 

—  influencing    buyers     to     "ac- 

cept, ' '  arguments  for,  327 

—  introduction   of,   by   organiza- 

tions, plans  for,  311 

: by  Empire  State  Asso- 
ciation of  Stove  Manufac- 
turers, 312-313 

by  National  Organization 

of   Manufacturers,   314-315 


INDEX 


371 


Trade    acceptances^    introduction  | 
of,    graphic    explanation    in, 
value  of,  45,  46,  47 

importance  of  understand- 
ing financial  and  banking 
aspects  in,  50 

plans  for,  116 

obligatory,    116-117 

^  — optional,   116-117 

with    inducements,    116- 

117,  118 

special  terms  for,  45,  46 

to    wholesale   business,    44- 

50 

importance      of      credit 

working  plan  to,  50 

importance  of  salesmen's 

belief  in,  49 

methods  in,  48 

— -issuing  and  explaining  plans 
of,  46,  47 

—  markets  for,  96 

—  National  Association  of  Credit 

Men  for,  13 

—  objections  to,  265 

suggestions     for     solutions 

of,  265,  266 

—  obtaining  of,  with  order,  75 

—  payment   of,   action  of   banks 

in,  74 

—  promulgation    of,   by   Federal 

Reserve  Board,  12,  40 
pioneers  in,  309 

—  questionnaire   on,    answers   to, 

183-188 

analysis  of,   188-194 

as  to  advantages,  188 

as    to    bank    attitude, 

189 

as  to  benefits,  192 

as      to      benefits      to 

buyer,  193 
as  to  collection  costs, 

191 

as  to  credit,  190 

as   to    customers'    at- 
titude, 188-189 
as  to  firm's  attitude, 

190 
as     to     forms     used, 

191 
as  to  inducements,  192 


Trade  acceptances,  questionnaire 
on,  analysis  of,  as  to  local 
trade  association  attitude, 
193 

as  to  methods  of  dis- 
count, 193 

as  to  methods  of  fol- 
low-up, 191 

as     to     methods     of 

handling  acceptances,   192 

as  to  methods  of  over- 
coming objections,  189 

as  to  promotion  with 

salesmen,  189,  191 

as  to  proportion  dis- 
counted, 190 

as  to  proportion  un- 
paid, 190 

as    to    selling   outside 

of  bank,  193 

as  to  iise  of  accept- 
ances, 188 

—  — ■  answers  to,  by  Iowa  manu- 

facturer of  farm  machinery, 
183-188 

by  New  York  jobber  of 

specialties,   183-188 

by  Philadelphia  manu- 
facturer  of   paints,   183-188 

by  San  Francisco  jobber 

of  railway  supplies,  183-188 

bv   Washington    (State) 

small-food  jobber,   183-188 

—  rat€s   of   handling,   in   accept- 

ance market,  114-115 

—  rediscount  of,  by  Federal  Ee- 

serve  Banks,  42,  43 
eligibility  for,  110-111 

—  "receivable,"   entries   for,   83 

—  refusal     of,     a    detriment    to 

buyer,  336 

—  retail.      See    Retail    trade    ac- 

ceptances 

informal  ruling  on,  132-133 

legitimacy  of,  131 

—  Federal    Reserve    Board 

ruling  on,  131-132 

merchant  and,  127-133 

possibilities   of,   127 

use  of,  129-130 

—  renewal   or   extension    of,   im- 

possibility of,  16 


372 


INDEX 


Trade  acceptances,  revenue 
stamps   on,   79 

—  seller  instrument  in  making  of,  16 

—  service  charges  on,   109 

—  signature  in  place  for,  71 

—  time-extension    in,    method   of 

handling,  82-83 

—  Uniform     Negotiable     Instru- 

ments Law  regarding,  113 

—  use  of,  questionnaire  on,  188 
comments     on,     by    officers 

of  organizations,  315-316 

first    official,    316 

since  Civil  War,  38 

—  wholesale.        See      Wholesale 

Trade  Acceptances 
Trade  discount  for  trade  accept- 
ances.       Federal        Eeserve 
Board  ruling   on,  267 

—  wholesale  trade   acceptance   as 

an  aid  for,  272-273 

Turn-over,  importance  of  watch- 
ing, 330 

• — -retail  trade  acceptance  as  an 
aid  to,  286 

Union  Bank  of  Canada,  attitude 
of,  toward  inducements,  121 

Unpaid  trade  acceptances, 
method  of  handling,  81,  82 

—  proportion     of,     questionnaire 

on,   190 

Van  Buren,  Martin,  attitude  of, 
toward  bills  of  exchange,  38 

War  Convention,  attitude  of 
credit  men  in,  toward  trade 
acceptance,  324 

Webster,  Daniel,  attitude  of,  to- 
ward commercial  credit  sys- 
tem, 37 

Wholesale  business,  trade  accept- 
ances in,  introduction  of,  44- 
50 

• — retail  trade  acceptance  in,  286 

Wholesale  grocers  on  trade  ac- 
ceptances, 321 

Wholesale  trade  acceptances, 
268-284 

—  advantages   of,   to   buyer   and 

banker,  282-283 


Wholesale  trade  acceptances,  ad- 
vantages of,  to  manufacturer 
and  jobber,  268-284 

to  wholesaler,  268,  282-283 

—  as  aid  for  legitimate  trade  ex- 

tension,   278-279 

—  as    aid    for    time-extension    or 

trade  discount,  272-273 

—  as  aid  in  keeping  loans  liquid, 

282-283 

—  as  aid   in  making  the  banker 

the    credit    buyer's    banker, 
279,   280 

—  as   aid    in    self -liquidation    of 

paper,  283-284 

—  as   banking  benefits  to   seller, 

275 

—  as     compass    for     the    credit 

"captain,"  274 

—  as  credit  instrument,  268 

—  as  factor  for  accuracy  in  busi- 

ness transactions,  268 

—  as  factor  for  economy,  268 

—  as    graphic    representation    of 

credit  conditions,  270-272 

—  as  impetus  to  settlement,  271- 

272 

—  as  preferable  to  cash-discount 

business,  268-269 

—  as    preventive    for   hypotheca- 

tion    of     open     charge     ac- 
counts,  278-279 

—  as   preventive   for   over-exten- 

sion, 273 

—  as     sanction     for     terms     for 

buyer  as  well  as  seller,  274 

—  as    saving    in    bank    margins, 

277-278 

—  as     simplification     for     book- 

keeping and  accounting,  272 

—  for  bank  credits,  277 

—  one   paper   from   order  to   re- 

ceipt, 269-270 

—  preferential    rate    in,    282-283 
•:—  ruling     of     Federal     Eeserve 

Board  on  banking  accommo- 
dation for,  276-277 

—  testimonial  for,  by  an  actuary, 

269 
Wholesaler,  advantages  of  trade 
acceptance  to,  268,  280,  282- 
283 

fl) 


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